**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
 
 **FORM
        10-K**
 
 **(Mark
        One)**
 **[X]**  **ANNUAL
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**  **EXCHANGE
        ACT OF 1934**
 
 **For
        the Fiscal Year Ended December 31, 2006**
 
 **OR**
 
 **[  ]**  **TRANSITION
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934**
 
 **For
        the Transition Period From __________________ To
        __________________**
 
 **Commission
        File Number 1-33199**
 
 **ITLA
        CAPITAL CORPORATION**
 (Exact
        Name of Registrant as Specified in its Charter)
  **Delaware**
                
                **95-4596322**(State
                    or Other Jurisdiction of Incorporation or Organization)
                
                (I.R.S.
                    Employer Identification No.)**888
                    Prospect Street, Suite 110, La Jolla, California**
                
                **92037**(Address
                    of Principal Executive Offices)
                
                (Zip
                    Code)
 Registrant’s
        Telephone Number, Including Area Code: **(858)
        551-0511**
 
 Securities
        Registered Pursuant to Section 12(b) of the Act:




**Title
                  of Each Class**
              
              **Name
                  of Exchange on Which Registered****Common
                  Stock, $.01 Par Value**
              
              **New
                  York Stock Exchange**





Securities
      Registered Pursuant to Section 12(g) of the Act:


**None**





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes [  ] No
      [X]





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes [  ] No [X]





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the  registrant was
      required to file such reports), and (2) has been subject to such filing
      requirements for the past 90 days. Yes [X] No [   ]





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of the registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. [   ]





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer” in Rule 12b-2 of the Exchange Act. Large Accelerated Filer [  ]
      Accelerated Filer [X] Non-Accelerated Filer [  ]





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes [  ] No [X]





As
      of
      March 5, 2007, there were issued and outstanding 5,527,651 shares of the
      Registrant’s Common Stock. The aggregate market value of the voting stock held
      by non-affiliates of the Registrant as of June 30, 2006, computed by reference
      to the closing price of such stock as of June 30, 2006, was $290.8 million.
      (The
      exclusion from such amount of the market value of the shares owned by any person
      shall not be deemed an admission by the Registrant that such person is an
      affiliate of the Registrant.)











**Table
          of Contents**





**ITLA
      CAPITAL CORPORATION**





**FORM
      10-K**





**FOR
      THE FISCAL YEAR ENDED DECEMBER 31, 2006**








**TABLE
      OF CONTENTS**


**Page****PART
                I**Item
                1
            Business
            3Item
                1A.
            Risk
                Factors
            12Item
                1B.
            Unresolved
                Staff Comments
            16Item
                2
            Properties
            17Item
                3
            Legal
                Proceedings
            17Item
                4
            Submission
                of Matters to a Vote of Security
                Holders
            17**PART
                II**Item
                5
            Market
                for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
                Purchasesof
                Equity Securities
            18Item
                6
            Selected
                Financial Data
            20Item
                7
            Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations
            22Item
                7A.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            40Item
                8
            Financial
                Statements and Supplementary
                Data
            42Item
                9
            Changes
                in and Disagreements with Accountants on Accounting
                and Financial Disclosure
            70Item
                9A.
            Control
                and Procedures
            70Item
                9B.
            Other
                Information
            70**PART
                III**Item
                10
            Directors,
                Executive Officers and Corporate
                Governance
            71Item
                11
            Executive
                Compensation
            73Item
                12
            Security
                Ownership of Certain Beneficial Owners and
                Management and Related Stockholder Matters
            92Item
                13
            Certain
                Relationships and Related Transactions, and
                Director Independence
            94Item
                14
            Principal
                Accountant Fees and Services
            95**PART
                IV**Item
                15
            Exhibits
                and Financial Statement
                Schedules
            96Signatures
            97Certifications





**Forward-Looking
      Statements**





“Safe
      Harbor” statement under the Private Securities Litigation Reform Act of 1995:
      This Form 10-K contains forward-looking statements that are subject to risks
      and
      uncertainties, including, but not limited to, changes in economic conditions
      in
      our market areas, changes in policies by regulatory agencies, the impact of
      competitive loan products, loan demand risks, the quality or composition of
      our
      loan or investment portfolios, increased costs from pursuing the national
      expansion of our lending platform and operational challenges inherent in
      implementing this expansion strategy, fluctuations in interest rates, and
      changes in the relative differences between short- and long-term interest rates,
      levels of non-performing assets and other loans of concern, and operating
      results, the economic impact of any terrorist actions and other risks detailed
      from time to time in our filings with the Securities and Exchange Commission.
      We
      caution readers not to place undue reliance on any forward-looking statements.
      We do not undertake and specifically disclaim any obligation to revise any
      forward-looking statements to reflect the occurrence of anticipated or
      unanticipated events or circumstances after the date of such statements. These
      risks could cause our actual results for 2007 and beyond to differ materially
      from those expressed in any forward-looking statements by, or on behalf of,
      us.





As
      used
      throughout this report, the terms “we”, “our”, “us”, or the “Company” refer to
      ITLA Capital Corporation and its consolidated subsidiaries.





-
          2
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          of Contents**





**PART
      I**





**Item
      1. Business**





**General**





ITLA
      Capital Corporation (“ITLA Capital”) is a diversified bank holding company
      headquartered in San Diego County, California with consolidated assets of $3.4
      billion, consolidated net loans of $3.0 billion, consolidated deposits of $2.1
      billion and consolidated shareholders’ equity of $221.3 million as of December
      31, 2006. We conduct and manage our business principally through our
      wholly-owned subsidiary, Imperial Capital Bank (the “Bank”), an institution with
      $3.4 billion in assets, with six retail branches located in California, (Beverly
      Hills, Costa Mesa, Encino, Glendale, San Diego, and San Francisco), and one
      branch located in Carson City, Nevada. Our branch offices are primarily used
      for
      our deposit services and lending business. Additionally, the Bank has 23 loan
      origination offices serving the Western United States, the Southeast region,
      the
      Mid-Atlantic region, the Ohio Valley, the Metro New York area and New England.
      The Bank has been in business for 32 years.





We
      are
      primarily engaged in:





•  Originating
      and purchasing real estate loans secured by income producing properties for
      retention in its loan portfolio;





•  Originating
      entertainment finance loans; and





•  Accepting
      customer deposits through the following products: certificates of deposits,
      money market, passbook and demand deposit accounts. Our deposit accounts are
      insured by the Federal Deposit Insurance Corporation (“FDIC”) up to the legal
      limits.





We
      continuously evaluate business expansion opportunities, including acquisitions
      or joint ventures with companies that originate or purchase commercial and
      multi-family real estate loans, as well as other types of secured commercial
      loans. In connection with this activity, we periodically have discussions with
      and receive financial information about other companies that may or may not
      lead
      to the acquisition of the company, a segment or division of that company, or
      a
      joint venture opportunity.





Our
      executive offices are located at 888 Prospect Street, Suite 110, La Jolla,
      California 92037 and our telephone number at that address is (858)
      551-0511.





**Lending
      Activities**





*General.* During
      2006, our core lending activities were as follows:





•  Originating
      and purchasing real estate loans secured by income producing properties, or
      properties under construction; and





•  Originating
      entertainment finance loans.





*Income
      Producing Property Loans.* We
      originate and purchase real estate loans secured by first trust deeds or first
      mortgages on commercial and multi-family real estate. Our collateral consists
      primarily of the following types of properties:





Apartments
            Mini-storage
                    facilitiesRetail
                    centers
            Mobile
                    home parksSmall
                    office and light industrial buildings
            Multi-family
                    real estateHotels
            Other
                    mixed use or special purpose commercial
                    properties





At
      December 31, 2006, we had $2.5 billion of income producing property loans
      outstanding, representing 85.8% of our total real estate loans, and 82.5% of
      our
      gross loan portfolio. Most of our real estate borrowers are business owners,
      individual investors, investment partnerships or limited liability corporations.
      The income producing property lending that we engage in typically involves
      loans
      to a single borrower and is generally viewed as exposing the lender to a greater
      risk of loss than one- to four-family residential lending, because repayment
      of
      the loan generally is dependent, in large part, on the successful operation
      of
      the property securing the loan or the business conducted on the property
      securing the loan. During 2006, we continued the national expansion of our
      real
      estate lending platform, and as of December 31, 2006, we had 17 real estate
      loan
      origination offices located outside of California. In 2005, we opened our
      eastern area headquarters in Times Square in New York City. This office manages
      and supports our eastern seaboard real estate lending efforts.





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          of Contents**




Income
      producing property values are also generally subject to greater volatility
      than
      residential property values. The liquidation values of income producing
      properties may be adversely affected by risks generally incident to interests
      in
      real property, such as:





Changes
                    or continued weakness in general or local economic
                    conditions;
            Declines
                    in rental, room or occupancy rates in hotels, apartment complexes
                    or
                    commercial properties;Changes
                    or continued weakness in specific industry
                    segments;
            Changes
                    in governmental rules, regulations and fiscal policies, including
                    rent
                    control ordinances, environmental legislation and
                    taxation;Increases
                    in other operating expenses (including energy
                    costs);
            Increases
                    in interest rates, real estate and personal property tax rates;
                    andDeclines
                    in real estate values;
            Other
                    factors beyond the control of the borrower or the lender.





We
      originate real estate loans through our retail branches and loan origination
      offices. These offices are staffed by a total of 56 loan officers. Loan officers
      solicit mortgage loan brokers for loan applications that meet our underwriting
      criteria, and also accept applications directly from borrowers. A majority
      of
      the real estate loans funded by us are originated through mortgage loan brokers.
      Mortgage loan brokers act as intermediaries between us and the property owner
      in
      arranging real estate loans and earn a fee based upon the principal amount
      of
      each loan funded.





Income
      producing property loans are generally made in amounts up to 75% of the
      appraised value of the property; however, multi-family loan originations may
      be
      made at a loan to value ratio of up to 80%. Loans are generally made for terms
      of between ten and 30 years, with amortization periods up to 30 years. Depending
      on market conditions at the time the loan was originated, certain loan
      agreements may include prepayment penalties.





The
      average yield on our real estate loan portfolio was 7.74% in 2006 compared
      to
      6.99% in 2005. Our real estate loan portfolio is primarily composed of
      adjustable rate mortgages indexed to either six month LIBOR or the Prime Rate
      with interest rate floors, below which the loan’s contractual interest rate may
      not adjust. Approximately 51.3% of our loan portfolio was comprised of
      adjustable rate loans at December 31, 2006, and approximately 45.5% of the
      loan
      portfolio was comprised of hybrid loans, which, after an initial fixed rate
      period of three or five years, will convert to an adjustable interest rate
      for
      the remaining term of the loan. Our adjustable rate loans generally re-price
      on
      a quarterly or semi-annual basis with increases generally limited to maximum
      adjustments of 2% per year up to 5% for the life of the loan. As of December
      31,
      2006, approximately $2.7 billion, or 90.5%, of our adjustable rate loan
      portfolio contained interest rate floors, below which the loans’ contractual
      interest rate may not adjust. The inability of our loans to adjust downward
      can
      contribute to increased income in periods of declining interest rates, and
      also
      assists us in our efforts to limit the risks to earnings resulting from changes
      in interest rates, subject to the risk that borrowers may refinance these loans
      during periods of declining interest rates. At December 31, 2006, the weighted
      average floor interest rate of our adjustable rate loan portfolio was 6.03%.
      At
      that date, approximately $95.0 million, or 3.2%, of our adjustable rate loan
      portfolio was at the floor interest rate. At December 31, 2006, 52.0% of the
      adjustable rate loans outstanding had a lifetime interest rate cap. The
      weighted-average lifetime interest rate cap on our adjustable rate loan
      portfolio was 11.60%. At December 31, 2006, none of the loans in our adjustable
      rate loan portfolio were at their cap rate.





In
      2006,
      2005, and 2004, we purchased income producing real estate loans totaling $497.8
      million, $595.3 million, and $136.5 million, respectively. In our real estate
      loan purchases, we generally apply the same underwriting criteria as loans
      internally originated and reserve the right to reject particular loans from
      a
      loan pool being purchased that do not meet our underwriting criteria. In
      addition to our loan purchases, our internal loan originations during 2006
      consisted of $693.1 million of commercial real estate loans, $293.7 million
      of
      small balance multi-family real estate loans, and $102.7 million of
      entertainment finance loans.





*Construction
      Loans.* We
      originate construction loans for income producing properties, as well as for
      single-family residential tract and condominium construction. At December 31,
      2006, we had $347.8 million of construction loans outstanding, representing
      11.5% of our gross loans receivable. In addition to the lending risks previously
      discussed, construction loans also present risks associated with changes in
      values and market conditions between the time the construction loan is closed
      and the project is completed and stabilized, the timely completion of
      construction activities for their allotted costs and the time needed to
      stabilize income properties. These risks can be affected by a variety of
      factors, including the oversight of the project, localized costs for labor
      and
      materials, and the weather.





*Entertainment
      Finance Loans* .
      We
      conduct our entertainment finance operations through ICB Entertainment Finance
      (“ICBEF”), a division of the Bank. Typically, ICBEF lends to independent
      producers of film and television on a senior secured basis. Collateral documents
      include a mortgage of copyright, security agreements and assigned sales
      contracts. Credit decisions are based in part on the creditworthiness and
      reputation of the producer, the sales agent and distributors who have contracted
      to distribute the films. ICBEF provides loans (with a typical term of 12 to
      18
      months) and letters of credit for the production of motion pictures and
      television shows or series that have a predictable market worldwide, and
      therefore, a predictable level of revenue arising from licensing of the
      worldwide distribution rights.





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ICBEF
      lends to independent producers of film and television, many of which are located
      in California. To a lesser extent, ICBEF also has borrowing clients outside
      of
      the United States; however, all loans are denominated in United States dollars.
      Independent producers tend to be those producers that do not have major studio
      distribution outlets for their product. Large film and television studios
      generally maintain their own distribution outlets and finance their projects
      with internally generated financing. In addition to funding production loans
      against a number of distribution contracts, ICBEF may permit an advance,
      generally not to exceed 20% of the budget amount, against its valuation of
      unsold rights. ICBEF uses industry standards in the valuation of unsold rights.
      ICBEF’s lending officers review the quality of the distributors and their
      contracts, the budget, the producer’s track record, the script, the genre,
      talent elements, the schedule of advances, and valuation of all distribution
      rights when considering a new lending opportunity. Generally, ICBEF loans
      require the borrower to provide a completion bond that guarantees the completion
      of the film or the payoff of the outstanding balance of the loan in the event
      the film is not completed. After closing, each requested advance is approved
      by
      the bonding company on a regular basis to ensure that ICBEF is not advancing
      ahead of an agreed-upon cash flow schedule. The loan documentation grants ICBEF
      the right to impose certain penalties on the borrower and exercise certain
      other
      rights, including replacing the sales agent, if sales are not consummated within
      the appropriate time. Loans are repaid principally from revenue received from
      distribution contracts. In many instances, the distribution contracts provide
      for multiple payments payable at certain milestones (such as execution of
      contract, commencement of principal photography or completion of principal
      photography). The maturity date of the loan is generally six to nine months
      after completion of the production. Delivery of the completed production is
      typically made to the various distributors upon or after their minimum
      guarantees have been paid in full. To the extent a distributor fails to make
      payment upon completion of the film, or the predicted level of revenue is less
      than expected, we may incur a loss if rights cannot be resold for the same
      amount or other loan collateral cannot cover required loan
      payments.





ICBEF
      typically charges its customers an interest rate of three month LIBOR plus
      a
      margin (exclusive of loan fees) on the outstanding balance of the loan. Loan
      fees range from 1.00% to 2.25% with an additional fee up to 7.00% depending
      on
      the unsecured amount of the production budget being financed.





At
      December 31, 2006 and 2005, our entertainment finance portfolio totaled $74.2
      million and $66.5 million, respectively, representing 2.5% and 2.6% of our
      gross
      loan portfolio as of these dates. Of these amounts, approximately $10.3 million
      and $3.6 million, respectively, were issued to producers domiciled outside
      of
      the United States. The foreign loans outstanding at December 31, 2006 were
      primarily issued to producers located in Canada. Approximately $5.6 million,
      $7.7 million and $7.0 million of interest income was earned during 2006, 2005
      and 2004, respectively, in connection with our entertainment finance portfolio.





*Franchise
      Loans* .
      During
      2005, we closed our franchise lending operations and sold approximately $110.0
      million, or 89.0%, of the remaining loans within this portfolio. We do not
      currently anticipate originating or purchasing franchise loans in the future.
      Prior to the closure, we operated our franchise lending operations through
      a
      division of the Bank, Imperial Franchise Finance, based in Tempe, Arizona.
      Franchise loans are loans to owners of businesses, both franchisors and
      franchisees, such as fast food restaurants or gasoline retailers that are
      affiliated with nationally or regionally recognized chains and brand names.
      Various combinations of land, building, business equipment and fixtures may
      secure these loans, or they may be a general obligation of the borrower based
      on
      an evaluation of the borrower’s business and debt service ability. These loans
      may be viewed as riskier than our real estate secured loans, as in each case,
      the primary source of repayment of a franchise loan is the cash flow of the
      business and not the underlying value of the collateral. In addition, in certain
      cases, the success of the borrower’s business depends on the management talents
      and efforts of one or two persons or a small group of persons, and the death,
      disability or resignation of one or more of these persons could have a material
      adverse impact on the business. Many of these borrowers have smaller market
      shares than their competition, may be more vulnerable to economic downturns,
      often need additional capital to expand or compete and may experience
      substantial variations in operating results, any of which might impair the
      borrower’s ability to repay a loan. As of December 31, 2006 and 2005, our
      franchise loan portfolio was $9.3 million and $13.7 million, respectively,
      which
      represented 0.3% and 0.5%, respectively, of our gross loan portfolio as of
      those
      dates.





*Loan
      Underwriting.* A
      significant portion of our loans are made to lower credit grade borrowers or
      where the property securing the loan has other factors, such as debt-to-income
      ratios or property location, that prevent the borrower from obtaining a prime
      interest rate. We attempt to mitigate the risk associated with these loans
      by
      charging higher interest rates and through our loan approval and loan purchasing
      process. Initial loan review for potential applications is performed by the
      Regional Directors and Area Manager of our loan origination offices, in
      consultation with the Chief Lending Officer, the Chief of Lending Operations,
      the Director of Loan Operations, and the Vice Chairman/Chief Credit Officer.
      Our
      loan underwriters are responsible for detailed reviews of borrowers, collateral,
      and loan terms, and prepare a written presentation for every loan application
      submitted to the real estate loan committee, which is comprised of the following
      Bank officers:




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          of Contents**





•Chairman,
                President, and Chief Executive Officer
            •Managing
                Director/Credit Risk Management•Vice
                Chairman and Chief Credit Officer
            •Deputy
                Managing Director/Eastern Area Manager•Executive
                Managing Director/Chief Operating Officer
            •Deputy
                Managing Director/Loan Underwriting•Senior
                Managing Director/Chief Lending Officer
            •First
                Vice President/East Coast Credit Executive•Senior
                Managing Director/Chief of Lending Operations
            •First
                Vice President/Chief Underwriter-Express Loan
                Operations





The
      underwriting standards for loans secured by income producing real estate
      consider the borrower’s financial resources and ability to repay and the amount
      and stability of cash flow, if any, from the underlying collateral, to be
      comparable in importance to the loan-to-value ratio as a repayment source.





All
      real
      estate secured loans over $3.0 million must be submitted to the loan committee
      for approval. At least one loan committee member or designee must personally
      conduct on-site inspections of any property involved in connection with a real
      estate loan recommendation of $2.0 million or more. Loans up to $750,000 may
      be
      approved by any loan committee member. Loans of $750,000 to $2.0 million require
      approval by any two members of the Bank’s loan committee, while loans in excess
      of $2.0 million require approval of three loan committee members, one of whom
      must be the Chief of Lending Operations or the Director of Loan Operations,
      and
      only one of whom may be from the Loan Production Unit. Additionally, loans
      over
      $3.0 million require the approval of the Chief of Lending Operations, and loans
      over $4.0 million require the additional approval of the Vice Chairman and
      Chief
      Credit Officer; and individual loans over $7.5 million, loans resulting in
      an
      aggregate borrowing relationship to one borrower in excess of $10.0 million,
      and
      all purchased loan pools must be approved by the Executive Committee of the
      Bank’s Board of Directors.





All
      entertainment finance loans over $1.0 million are submitted to the business
      lending loan committee for approval. All loans must be approved by the Managing
      Director/Credit Risk Management and loans over $3.0 million must be approved
      by
      the Vice Chairman and Chief Credit Officer. Individual loans over $7.5 million,
      loans resulting in an aggregate borrowing relationship to one borrower in excess
      of $10.0 million, and all purchased loan pools must be approved by the executive
      committee of the Bank’s Board of Directors.





Our
      loans
      are originated on both a non-recourse and full recourse basis and we generally
      seek to obtain personal guarantees from the principals of borrowers which are
      single asset or limited liability entities (such as partnerships, corporations
      or trusts).





The
      maximum size of a single loan made by the Bank is limited by California law
      to
      25% of the Bank’s equity capital. At December 31, 2006, that limit was
      approximately $70.0 million. Our largest combined credit extension to related
      borrowers was $32.6 million at December 31, 2006. At December 31, 2006, we
      had a
      total of 164 extensions of credit, with a combined outstanding principal balance
      of $701.8 million that were over $5.0 million to a single borrower or related
      borrowers. All combined extensions of credit over $5.0 million were performing
      in accordance with their repayment terms, with the exception of one credit
      relationship that is on nonaccrual status and has a combined outstanding
      principal balance of $10.1 million. At December 31, 2006, we had 3,296 real
      estate loans outstanding, with an average balance per loan of approximately
      $878,000.





*Servicing
      and Collections.* Our
      loan
      portfolio is predominantly serviced by our loan servicing department, which
      is
      designed to provide prompt customer service, and accurate and timely information
      for account follow-up, financial reporting and management review. We monitor
      our
      loans to ensure that projects are performing as underwritten. This monitoring
      allows us to take a proactive approach to addressing projects that do not
      perform as planned. When payments are not received by their contractual due
      date, collection efforts begin on the fifteenth day of delinquency with a
      telephone contact, and proceed to written notices that progress from reminders
      of the borrower’s payment obligation to an advice that a notice of default may
      be forthcoming. Accounts delinquent for more than 30 days are reviewed more
      closely by our asset management department which is responsible for implementing
      a collection or restructuring plan, or a disposition strategy, and evaluates
      any
      potential loss exposure on the asset.





*Competition.* Our
      competition in originating real estate, construction, and entertainment finance
      loans is principally from community banks, savings and loan associations,
      industrial banks, real estate financing conduits, specialty finance companies,
      small insurance companies, and larger banks. Many of these entities enjoy
      competitive advantages over us relative to a potential borrower in terms of
      a
      prior business relationship, wider geographic presence or more accessible branch
      office locations, the ability to offer additional services or more favorable
      pricing alternatives, or a lower cost of funds structure. We attempt to offset
      the potential effect of these factors by providing borrowers with greater
      individual attention and a more flexible and time-sensitive underwriting,
      approval and funding process than they might obtain elsewhere.





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**Imperial
      Capital Real Estate Investment Trust**





During
      2000, we acquired all of the equity and certain collateralized mortgage
      obligations (“CMOs”) of the ICCMAC Multi-family and Commercial Trust 1999-1
      (“ICCMAC Trust”) through our real estate investment trust subsidiary, Imperial
      Capital Real Estate Investment Trust (“Imperial Capital REIT”). During 2004, the
      CMOs were retired and the ICCMAC Trust was dissolved. The remaining outstanding
      loans were contributed to Imperial Capital REIT. At December 31, 2006, Imperial
      Capital REIT held net real estate loans of $2.1 million. The cash flow from
      Imperial Capital REIT loan pool provides cash flow on a monthly basis to ITLA
      Capital. ITLA Capital recognized $170,000 of interest income from the loans
      held
      in the Imperial Capital REIT during the year ended December 31,
      2006.





**Non-performing
      Assets and Other Loans of Concern**





At
      December 31, 2006, non-performing assets totaled $33.0 million or 0.97% of
      total
      assets. Non-performing assets consisted of $26.3 million of non-accrual loans
      and $6.7 million of other real estate owned consisting of four properties.
      For
      additional information regarding non-performing assets see “Item 7. Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Credit Risk Elements”.





As
      of
      December 31, 2006, we had loans with an aggregate outstanding balance of $67.0
      million with respect to which known information concerning possible credit
      problems with the borrowers or the cash flows of the properties securing the
      respective loans has caused management to be concerned about the ability of
      the
      borrowers to comply with present loan repayment terms. This may result in the
      future inclusion of such loans in the non-accrual loan category. All of these
      loans are classified as substandard pursuant to the regulatory guidelines
      discussed below.





**Classified
      Assets**





Management
      uses a loan classification system consistent with the classification system
      used
      by bank regulatory agencies to help it evaluate the risks inherent in its real
      estate loan portfolio. Loans are identified as “pass”, “substandard”, “doubtful”
or “loss” based upon consideration of all sources of repayment, underlying
      collateral values, current and anticipated economic conditions, trends and
      uncertainties, and historical experience. Pass loans are further divided into
      four additional sub-categories, based on the borrower’s financial strength and
      ability to service the debt and/or the value and debt service coverage of the
      underlying collateral. Underlying collateral values for real estate dependent
      loans are supported by property appraisals or evaluations. We review our loan
      classifications on at least a quarterly basis. At December 31, 2006, we
      classified $85.7 million of loans as “substandard”, $7.6 million as “doubtful”
and none as “loss” of which, $26.3 million of these classified loans were
      included in the non-performing assets table in “Item 7. Management’s Discussion
      and Analysis of Financial Condition and Results of Operations - Credit Risk
      Elements”.





**Funding
      Sources**





The
      primary source of funding for our lending operations and investments are
      deposits. Our deposits are federally insured by the FDIC to the maximum extent
      permitted by law. Approximately 87.5% of our deposits are term deposits that
      pay
      fixed rates of interest for periods ranging from 90 days to five years, 10.3%
      of
      our deposits are adjustable rate passbook accounts and adjustable rate money
      market accounts with limited checking features, and 2.2% are customer demand
      deposit accounts.





Our
      retail checking account balance was $47.7 million at December 31, 2006. We
      generally accumulate deposits by relying on renewals of term accounts by
      existing depositors, participating in deposit rate surveys which promote the
      rates offered by us on our deposit products, and periodically advertising in
      various local market newspapers and other media. Management believes that our
      deposits are a reliable funding source and that the cost of funds resulting
      from
      our deposit gathering strategy is comparable to those of other banks pursuing
      a
      similar strategy. However, because we compete for deposits primarily on the
      basis of rates, we could experience difficulties in attracting deposits if
      we
      could not continue to offer deposit rates at levels above those of other
      financial institutions. Management also believes that any efforts to
      significantly increase the size of our deposit base may require greater
      marketing efforts and/or increases in deposit rates. At December 31, 2006,
      we
      had $332.8 million of brokered deposits.





For
      information concerning overall deposits outstanding during the periods indicated
      and the rates paid thereon, see “Item 7. Management’s Discussion and Analysis of
      Financial Condition and Results of Operations — Net Interest
      Income”.





The
      Bank
      also uses advances from the FHLB of San Francisco and borrowings from other
      unaffiliated financial institutions as funding sources. FHLB advances are
      collateralized by pledges of qualifying cash equivalents, investment securities,
      mortgage-backed securities and loans. At December 31, 2006, FHLB advances
      outstanding totaled $980.0 million, and the remaining available borrowing
      capacity, based on the loans and securities pledged as collateral, totaled
      $310.3 million, net of the $12.2 million of additional FHLB Stock that we would
      be required to purchase to support the additional borrowings. Additionally,
      the
      Bank has a $30.0 million repurchase agreement borrowing from an unaffiliated
      financial institution that is secured by mortgage-backed securities. The Bank
      also has uncommitted, unsecured lines of credit with other banks renewable
      daily
      in the amount of $128.0 million and ITLA Capital has a $25.0 million revolving
      credit facility with an unaffiliated financial institution. This revolving
      credit facility matures on April 30, 2007, which we intend on renewing upon
      maturity. See “Item 8. Financial Statements and Supplementary Data — Notes to
      Consolidated Financial Statements — Notes 7, 8, and 9”.





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**Regulation**





As
      a bank
      holding company, ITLA Capital is regulated by the Board of Governors of the
      Federal Reserve System (the “Federal Reserve Board” or “FRB”). As a
      California-chartered commercial bank, the Bank is regulated by the California
      Department of Financial Institutions (the “DFI”) and the Federal Deposit
      Insurance Corporation (the “FDIC”).





***Holding
      Company Regulation***





Bank
      holding companies are subject to comprehensive regulation by the Federal Reserve
      Board under the Bank Holding Company Act of 1956, and the regulations of the
      Federal Reserve Board. As a bank holding company, ITLA Capital is required
      to
      file reports with the Federal Reserve Board and provide such additional
      information as the Federal Reserve Board may require. ITLA Capital and its
      non-bank subsidiaries are also subject to examination by the Federal Reserve
      Board. The Federal Reserve Board has extensive enforcement authority over bank
      holding companies, including, among other things, the ability to assess civil
      money penalties, to issue cease and desist or removal orders and to require
      that
      a bank holding company divest subsidiaries, including its bank subsidiaries.
      In
      general, enforcement actions may be initiated for violations of law and
      regulation as well as unsafe or unsound practices.





Under
      Federal Reserve Board policy, a bank holding company must serve as a source
      of
      strength for its subsidiary banks. Under this policy, the Federal Reserve Board
      may require, and has required in the past, bank holding companies to contribute
      additional capital to undercapitalized subsidiary banks.





Under
      the
      Bank Holding Company Act of 1956, a bank holding company must obtain Federal
      Reserve Board approval before, among other matters:





•  acquiring,
      directly or indirectly, ownership or control of any voting shares of another
      bank or bank holding company if, after the acquisition, it would own or control
      more than 5% of these shares (unless it already owns or controls a majority
      of
      these shares);





•  acquiring
      all or substantially all of the assets of another bank or bank holding company;
      or





•  merging
      or consolidating with another bank holding company.





This
      statute also prohibits a bank holding company, with certain exceptions, from
      acquiring direct or indirect ownership or control of more than 5% of the voting
      shares of any company which is not a bank or bank holding company, or from
      engaging directly or indirectly in activities other than those of banking,
      managing or controlling banks, or providing services for its subsidiaries.
      The
      principal exceptions to these prohibitions involve certain non-bank activities
      which have been identified as activities closely related to the business of
      banking or managing or controlling banks. Companies that qualify as financial
      holding companies may also engage in securities, insurance and merchant banking
      activities.





*Dividends* .
      The
      Federal Reserve Board has issued a policy statement on the payment of cash
      dividends by bank holding companies, which expresses the Federal Reserve Board’s
      view that a bank holding company should pay cash dividends only to the extent
      that its net income for the past year is sufficient to cover both the cash
      dividends and a rate of earnings retention that is consistent with the bank
      holding company’s capital needs, asset quality and overall financial condition.
      Furthermore, under its source of strength doctrine, the Federal Reserve Board
      expects a bank holding company to serve as a source of financial strength for
      its bank subsidiaries, which could limit the ability of a holding company to
      pay
      dividends if a bank subsidiary did not have sufficient capital.





*Repurchase
      or Redemption of Equity Securities.* A
      bank
      holding company is required to give the Federal Reserve Board prior written
      notice of any purchase or redemption of its outstanding equity securities if
      the
      gross consideration for the purchase or redemption, when combined with the
      net
      consideration paid for all such purchases or redemptions during the preceding
      12
      months, is equal to 10% or more of its consolidated net worth. The Federal
      Reserve Board may disapprove such a purchase or redemption if it determines
      that
      the proposal would constitute an unsafe or unsound practice or would violate
      any
      law, regulation, Federal Reserve Board order, or any condition imposed by,
      or
      written agreement with, the Federal Reserve Board. This notification requirement
      does not apply to any company that meets the well-capitalized standard for
      bank
      holding companies, has a safety and soundness examination rating of at least
      a
“2” and is not subject to any unresolved supervisory issues.





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*Regulatory
      Capital Requirements* . The
      Federal Reserve has established risk-based measures and a leverage measure
      of
      capital adequacy for bank holding companies.





The
      risk-based capital standards are designed to make regulatory capital
      requirements more sensitive to differences in risk profiles among banks and
      bank
      holding companies, to account for off-balance-sheet exposure, and to minimize
      disincentives for holding liquid assets. Assets and off-balance-sheet items,
      such as letters of credit and unfunded loan commitments, are assigned to broad
      risk categories, each with appropriate risk weights. The resulting capital
      ratios represent capital as a percentage of total risk-weighted assets and
      off-balance-sheet items.





The
      minimum ratio of total capital to risk-weighted assets is 8.0%. Total capital
      consists of two components, Tier 1 capital and Tier 2 capital. Tier 1 capital
      generally consists of common shareholders’ equity, including retained earnings,
      noncumulative perpetual preferred stock, certain trust preferred securities
      and
      minority interest in equity accounts of fully consolidated subsidiaries, less
      goodwill and other specified intangible assets. Tier 1 capital must equal at
      least 4.0% of risk-weighted assets. Tier 2 capital generally consists of
      subordinated debt and other hybrid capital instruments, other preferred stock,
      a
      limited amount of loan loss reserves and a limited amount of unrealized holding
      gains on equity securities. The total amount of Tier 2 capital is limited to
      100% of Tier 1 capital. At December 31, 2006, our ratio of total capital to
      risk-weighted assets was 11.9% and our ratio of Tier 1 capital to risk-weighted
      assets was 10.2%.





In
      addition, the Federal Reserve has established minimum leverage ratio guidelines
      for bank holding companies. These guidelines provide for a minimum ratio of
      Tier
      1 capital to average assets, less goodwill and other specified intangible
      assets, of 3.0% for certain bank holding companies that meet specified criteria,
      including having the highest regulatory rating and implementing the Federal
      Reserve’s risk-based capital measure for market risk. All other bank holding
      companies generally are required to maintain a leverage ratio of at least 4.0%.
      At December 31, 2006, ITLA Capital’s required leverage ratio was 4.0% and
      its actual leverage ratio was 9.0%.





ITLA
      Capital currently is deemed “well capitalized” under the Federal Reserve Board
      capital requirements. To be well capitalized, a bank holding company must have
      a
      ratio of total capital to risk weighted assets of at least 10% and a ratio
      of
      Tier 1 capital to risk weighted assets of at least 6.0%.





Failure
      to meet capital guidelines could subject a bank or bank holding company to
      a
      variety of enforcement remedies, including issuance of a capital directive,
      the
      termination of deposit insurance by the FDIC, a prohibition on accepting
      brokered deposits, and other restrictions on its business. As described below,
      significant additional restrictions can be imposed on FDIC-insured depository
      institutions that fail to meet applicable capital requirements.





***Bank
      Regulation — California Law***





The
      regulations of the DFI govern most aspects of the Bank’s businesses and
      operations, including, but not limited to, the scope of its business,
      investments, the nature and amount of any collateral for loans, the issuance
      of
      securities, the payment of dividends, bank expansion and bank activities. The
      DFI’s supervision of the Bank includes comprehensive reviews of all aspects of
      the Bank’s business and condition, and the DFI possesses broad remedial
      enforcement authority to influence the Bank’s operations, both formally and
      informally.





***Bank
      Regulation — Federal Law***





The
      FDIC,
      in addition to the DFI, broadly regulates the Bank. As an insurer of deposits,
      the FDIC issues regulations, conducts examinations, requires the filing of
      reports, and generally supervises the operations of institutions to which it
      provides deposit insurance. The FDIC is also the federal agency charged with
      regulating state-chartered banks that are not members of the Federal Reserve
      System, such as the Bank. Insured depository institutions, and their
      institution-affiliated parties, may be subject to potential enforcement actions
      by the FDIC and the DFI for unsafe or unsound practices in conducting their
      businesses or for violations of any law, rule, regulation or any condition
      imposed in writing by the agency or any written agreement with the agency.
      Management is not aware of any pending or threatened enforcement actions against
      the Bank.





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*Regulatory
      Capital Requirements.* Federally-insured,
      state-chartered banks such as the Bank are required to maintain minimum levels
      of regulatory capital as specified in the FDIC’s capital maintenance
      regulations. The FDIC also is authorized to impose capital requirements in
      excess of these standards on individual banks on a case-by-case
      basis.





The
      Bank
      is required to comply with three separate minimum capital requirements: a “tier
      1 capital ratio” and two “risk-based” capital requirements. “Tier 1 capital”
generally includes common shareholders’ equity, including retained earnings,
      qualifying noncumulative perpetual preferred stock and any related surplus,
      and
      minority interests in the equity accounts of fully consolidated subsidiaries,
      less intangible assets, other than properly valued purchased mortgage servicing
      rights up to certain specified limits and less net deferred tax assets in excess
      of certain specified limits.





*Tier
      1 Capital Ratio.* FDIC
      regulations establish a minimum 3.0% ratio of tier 1 capital to total average
      assets for the most highly-rated state-chartered, FDIC-supervised banks. All
      other FDIC supervised banks must maintain at least a 4.0% tier 1 capital ratio.
      At December 31, 2006, the Bank’s required minimum tier 1 capital ratio was 4.0%
      and its actual tier 1 capital ratio was 9.1%.





*Risk-Based
      Capital Requirements.* The
      risk-based capital requirements generally require the Bank to maintain a minimum
      ratio of tier 1 capital to risk-weighted assets of at least 4.0% and a minimum
      ratio of total risk-based capital to risk-weighted assets of at least 8.0%.
      To
      calculate the amount of capital required, assets are placed in one of four
      categories and given a percentage weight (0%, 20%, 50% or 100%) based on the
      relative risk of the category. For example, United States Treasury Bills and
      Ginnie Mae securities are placed in the 0% risk category. Fannie Mae and Freddie
      Mac securities are placed in the 20% risk category, loans secured by one-to
      four-family residential properties and certain privately-issued mortgage-backed
      securities are generally placed in the 50% risk category, and commercial and
      consumer loans and other assets are generally placed in the 100% risk category.
      In addition, certain off-balance-sheet items are converted to balance sheet
      credit equivalent amounts and each amount is then assigned to one of the four
      categories.





For
      purposes of the risk-based capital requirements, “total capital” means tier 1
      capital plus supplementary or tier 2 capital, so long as the amount of
      supplementary or tier 2 capital that is used to satisfy the requirement does
      not
      exceed the amount of tier 1 capital. Tier 2 capital includes cumulative and
      certain other perpetual preferred stock, mandatory convertible subordinated
      debt
      and perpetual subordinated debt, mandatory redeemable preferred stock,
      intermediate-term preferred stock, mandatory convertible subordinated debt
      and
      subordinated debt, the allowance for loan losses up to a maximum of 1.25% of
      risk-weighted assets and a limited amount of unrealized holding gains on
      securities. At December 31, 2006 the Bank’s required minimum tier 1 risk-based
      and total capital ratios were 4.0% and 8.0% respectively and its actual was
      10.3% and 11.5%, respectively.





The
      federal banking agencies have adopted regulations specifying that the agencies
      will include, in their evaluation of a bank’s capital adequacy, an assessment of
      the exposure to declines in the economic value of the bank’s capital due to
      changes in interest rates. The FDIC and the other federal banking agencies
      have
      also promulgated final amendments to their respective risk-based capital
      requirements which identify concentration of credit risk and certain risks
      arising from nontraditional activities, and the management of such risk, as
      important factors to consider in assessing an institution’s overall capital
      adequacy. The FDIC may require higher minimum capital ratios based on certain
      circumstances, including where the institution has significant risks from
      concentration of credit or certain risks arising from nontraditional
      activities.





*Prompt
      Corrective Action Requirements.* The
      FDIC
      has implemented a system requiring regulatory sanctions against state-chartered
      banks that are not adequately capitalized, with the sanctions growing more
      severe the lower the institution’s capital. The FDIC has established specific
      capital ratios for five separate capital categories: “well capitalized”,
“adequately capitalized”, “undercapitalized”, “significantly undercapitalized”,
      and “critically undercapitalized”.





An
      institution is treated as “well capitalized” if its total risk based capital
      ratio is 10.0% or more, its tier 1 risk-based ratio is 6.0% or more, its tier
      1
      capital ratio is 5.0% or greater, and it is not subject to any order or
      directive by the FDIC to meet a specific capital level. The Bank exceeded these
      requirements at December 31, 2006.





The
      FDIC
      is authorized and, under certain circumstances, required to take certain actions
      against institutions that are not at least adequately capitalized. Any such
      institution must submit a capital restoration plan and, until such plan is
      approved by the FDIC, may not increase its assets, acquire another institution,
      establish a branch or engage in any new activities, and generally may not make
      capital distributions. The capital restoration plan must include a limited
      guaranty by the institution’s holding company. In addition, the FDIC must
      appoint a receiver or conservator for an institution, with certain limited
      exceptions, within 90 days after it becomes “critically undercapitalized”.





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The
      FDIC
      is also generally authorized to reclassify an institution into a lower capital
      category and impose the restrictions applicable to such category if the
      institution is engaged in unsafe or unsound practices or is in an unsafe or
      unsound condition.





*Community
      Reinvestment Act and Fair Lending Requirements.* Federal
      banking agencies are required to evaluate the record of financial institutions
      in meeting the credit needs of their local communities, including low and
      moderate income neighborhoods. In its most recent examination, the FDIC rated
      the Bank “satisfactory” in complying with its Community Reinvestment Act
      obligations. The Bank is also subject to certain fair lending
      (nondiscrimination) requirements. In addition to substantial penalties and
      corrective measures that may be required for a violation of certain fair lending
      laws, the federal banking agencies take compliance with such laws into account
      when regulating and supervising other activities such as mergers and
      acquisitions.





*Fiscal
      and Monetary Policies.* Our
      business and earnings are affected significantly by the fiscal and monetary
      policies of the federal government and its agencies. We are particularly
      affected by the policies of the Federal Reserve Board, which regulates the
      supply of money and credit in the United States. Among the instruments of
      monetary policy available to the Federal Reserve Board are (a) conducting open
      market operations in United States government securities; (b) changing the
      discount rates of borrowings of depository institutions, (c) imposing or
      changing reserve requirements against depository institutions’ deposits, and (d)
      imposing or changing reserve requirements against certain borrowings by banks
      and their affiliates. These methods are used in varying degrees and combinations
      to directly affect the availability of bank loans and deposits, as well as
      the
      interest rates charged on loans and paid on deposits. The policies of the
      Federal Reserve Board may have a material effect on our business, results of
      operations and financial condition.





Federal
      Reserve Board regulations require the Bank to maintain non-interest earning
      reserves against the Bank’s transaction deposit accounts. Currently, the first
      $8.5 million of otherwise reservable balances are exempt from the reserve
      requirement, a 3% reserve requirement applies to balances over $8.5 million
      up
      to $45.8 million and a 10% reserve requirement applies to balances over $45.8
      million. The Bank was in compliance with these requirements as of December
      31,
      2006.





*Privacy
      Provisions.* Banking regulators, as required under the Gramm-Leach-Bliley Act (“GLB Act”),
      have adopted rules limiting the ability of banks and other financial
      institutions to disclose nonpublic information about consumers to nonaffiliated
      third parties. The rules generally require disclosure of privacy policies to
      consumers and, in some circumstances, allow consumers to prevent disclosure
      of
      certain personal information to nonaffiliated third parties. The privacy
      provisions of the GLB Act affect how consumer information is transmitted through
      diversified financial services companies and conveyed to outside
      vendors.





The
      State
      of California has adopted The California Financial Information Privacy Act
      (“CFPA”), which took effect in 2004. The CFPA requires a financial institution
      to provide specific information to a consumer related to the sharing of that
      consumer’s nonpublic personal information. A consumer may direct the financial
      institution not to share his or her nonpublic personal information with
      affiliated or nonaffiliated companies with which a financial institution has
      contracted to provide financial products and services, and requires that
      permission from the consumer be obtained by a financial institution prior to
      sharing such information. These provisions are more restrictive than the privacy
      provisions of the GLB Act.





In
      December 2003, the U.S. Congress adopted, and President Bush signed, the Fair
      and Accurate Transactions Act (the “FACT Act”). In 2005, federal courts
      determined that the provisions of the CFPA limiting shared information with
      affiliates are preempted by provisions of the GLB Act, the FACT Act and the
      Fair
      Credit Reporting Act.





*International
      Money Laundering Abatement and Financial Anti-Terrorism Act of
      2001.* President Bush signed the USA Patriot Act of 2001 into law in October 2001.
      This act contains the International Money Laundering Abatement and Financial
      Anti-Terrorism Act of 2001 (the “IMLAFA”). The IMLAFA substantially broadened
      existing anti-money laundering legislation and the extraterritorial jurisdiction
      of the United States, imposes new compliance and due diligence obligations,
      creates new crimes and penalties, compels the production of documents located
      both inside and outside the United States, and clarifies the safe harbor from
      civil liability to customers. The U.S. Treasury Department has issued a number
      of regulations implementing the USA Patriot Act that apply certain of its
      requirements to financial institutions such as the Bank. The regulations impose
      obligations on financial institutions to maintain appropriate policies,
      procedures and controls to detect, prevent and report money laundering and
      terrorist financing. The increased obligations of financial institutions,
      including us, to identify their customers, watch for and report suspicious
      transactions, respond to requests for information by regulatory authorities
      and
      law enforcement agencies, and share information with other financial
      institutions, requires the implementation and maintenance of internal
      procedures, practices and controls which have increased, and may continue to
      increase, our costs and may subject us to liability.





Enforcement
      and compliance-related activity by government agencies has increased. Money
      laundering and anti-terrorism compliance are among the areas receiving a high
      level of focus in the present environment.





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*Future
      Legislation.* Various
      legislation, including proposals to change substantially the financial
      institution regulatory system, is from time to time introduced in Congress.
      This
      legislation may change banking statutes and our operating environment in
      substantial and unpredictable ways. If enacted, this legislation could increase
      or decrease the cost of doing business, limit or expand permissible activities
      or affect the competitive balance among banks, savings associations, credit
      unions, and other financial institutions. We cannot predict whether any of
      this
      potential legislation will be enacted and, if enacted, the effect that it,
      or
      any implementing regulations, would have on our business, results of operations
      or financial condition.





**Employees**





As
      of
      December 31, 2006, we had 263 employees. Management believes that its relations
      with employees are satisfactory. We are not subject to any collective bargaining
      agreements.





**Segment
      Reporting**





Financial
      and other information regarding our operating segments is contained in Note
      18
      to our audited consolidated financial statements included in Item 8 of this
      report.





**Internet
      Website**





We
      maintain a website with the address www.itlacapital.com. The information
      contained on our website is not included as a part of, or incorporated by
      reference into, this Annual Report on Form 10-K. Other than an investor’s own
      Internet access charges, we make available free of charge through our website
      our Annual Report on Form 10-K, quarterly reports on Form 10-Q and current
      reports on Form 8-K, and amendments to these reports, as soon as reasonably
      practicable after we have electronically filed such material with, or furnished
      such material to, the Securities and Exchange Commission.





**Item
      1A. Risk Factors**





***An
      investment in our common stock is subject to risks inherent in our business.
      Before making an investment decision, you should carefully consider the risks
      and uncertainties described below together with all of the other information
      included in this report. In addition to the risks and uncertainties described
      below, other*** ***risks
      and uncertainties not currently known to us or that we currently deem to be
      immaterial also may materially and adversely affect our business, financial
      condition and results of operations.***  ***The
      value or market price of our common stock could decline due to any of these
      identified or other risks, and you could lose all or part of your
      investment.***





**Fluctuations
      in interest rates could reduce our profitability and affect the value of our
      assets.**





Like
      other financial institutions, we are subject to interest rate risk. Our primary
      source of income is net interest income, which is the difference between
      interest earned on loans and investments and the interest paid on deposits
      and
      borrowings. We expect that we will periodically experience imbalances in the
      interest rate sensitivities of our assets and liabilities and the relationships
      of various interest rates to each other. Over any defined period of time, our
      interest-earning assets may be more sensitive to changes in market interest
      rates than our interest-bearing liabilities, or vice versa. In addition, the
      individual market interest rates underlying our loan and deposit products may
      not change to the same degree over a given time period. In any event, if market
      interest rates should move contrary to our position, our earnings may be
      negatively affected. In addition, loan volume and quality and deposit volume
      and
      mix can be affected by market interest rates. Changes in levels of market
      interest rates could materially adversely affect our net interest spread, asset
      quality, origination volume and overall profitability.





Interest
      rates have recently been at historically low levels. However, since June 30,
      2004, the U.S. Federal Reserve has increased its target for the federal funds
      rate seventeen times, from 1.00% to 5.25%. While these short-term market
      interest rates (which we use as a guide to price our deposits) have increased,
      longer-term market interest rates (which we use as a guide to price our
      longer-term loans) have not. This “flattening” of the market yield curve has had
      a negative impact on our interest rate spread and net interest margin to date.
      If short-term interest rates continue to rise, and if rates on our deposits
      and
      borrowings continue to reprice upwards faster than the rates on our long-term
      loans and investments, we would experience further compression of our interest
      rate spread and net interest margin, which would have a negative effect on
      our
      profitability.





We
      principally manage interest rate risk by managing our volume and mix of our
      earning assets and funding liabilities. In a changing interest rate environment,
      we may not be able to manage this risk effectively. If we are unable to manage
      interest rate risk effectively, our business, financial condition and results
      of
      operations could be materially harmed.





Changes
      in the level of interest rates also may negatively affect our ability to
      originate real estate loans, the value of our assets and our ability to realize
      gains from the sale of our assets, all of which ultimately affect our
      earnings.





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**An
      increase in loan prepayments may adversely affect our profitability.**





Prepayment
      rates are affected by consumer behavior, conditions in the real estate and
      other
      financial markets, general economic conditions and the relative interest rates
      on our fixed-rate and adjustable-rate mortgage loans and mortgage-backed
      securities. Changes in prepayment rates are therefore difficult for us to
      predict.





We
      recognize our deferred loan origination costs and premiums paid in originating
      these loans by adjusting our interest income over the contractual life of the
      individual loans. As prepayments occur, the rate at which net deferred loan
      origination costs and premiums are expensed accelerates. The effect of the
      acceleration of deferred costs and premium amortization may be mitigated by
      prepayment penalties paid by the borrower when the loan is paid in full within
      a
      certain period of time which varies between loans. If prepayment occurs after
      the period of time when the loan is subject to a prepayment penalty, the effect
      of the acceleration of premium and deferred cost amortization is no longer
      mitigated.





We
      may
      not be able to reinvest prepayments on loans or mortgage-backed securities
      at
      rates comparable to the prepaid instrument particularly in periods of declining
      interest rates.





**An
      inadequate allowance for loan losses would reduce our earnings.**





We
      are
      exposed to the risk that our borrowers will be unable to repay their loans
      according to their terms and that any collateral securing the payment of their
      loans will not be sufficient to assure full repayment. Credit losses are
      inherent in the lending business and could have a material adverse effect on
      our
      operating results. Volatility and deterioration in the economy may also increase
      our risk for credit losses. We evaluate the collectibility of our loan portfolio
      and provide an allowance for loan losses that we believe is adequate based
      upon
      such factors as:




•
            
            the
                risk characteristics of various classifications of loans;




•
            
            general
                portfolio trends relative to asset and portfolio size;




•
            
            potential
                credit and geographic concentrations;




•
            
            delinquency
                trends and nonaccrual levels;




•
            
            historical
                loss and recovery experience and risks associated with changes in
                economic, social and business conditions;




•
            
            the
                amount and quality of the collateral;





•
            
            the
                views of our regulators; and




•
            
            the
                underwriting standards in effect when the loan is made.





If
      our
      evaluation is incorrect and borrower defaults cause losses exceeding our
      allowance for loan losses, our earnings could be materially and adversely
      affected. We cannot assure you that our allowance will be adequate to cover
      loan
      losses inherent in our portfolio. We may experience losses in our loan portfolio
      or perceive adverse trends that require us to significantly increase our
      allowance for loan losses in the future, which would also reduce our earnings.
      In addition, the Bank’s regulators, as an integral part of their examination
      process, may require us to make additional provisions for loan
      losses.





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          13
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          of Contents**




**Our
      income producing property loans involve higher principal amounts and expose
      us
      to a greater risk of loss than one-to-four family residential
      loans.**





At
      December 31, 2006, we had $2.5 billion of loans secured by commercial and
      multi-family real estate, representing 85.8% of our total real estate loans
      and
      82.5% of our gross loan portfolio. The income generated from the operation
      of
      the property securing the loan is generally considered by us to be the principal
      source of repayment on this type of loan. A significant portion of the income
      producing property lending in which we engage typically involves larger loans
      to
      a single borrower and is generally viewed as exposing the lender to a greater
      risk of loss than one-four family residential lending because these loans
      generally are not fully amortizing over the loan period, but have a balloon
      payment due at maturity. A borrower’s ability to make a balloon payment
      typically will depend on being able to either refinance the loan or timely
      sell
      the underlying property. Income producing property values are also generally
      subject to greater volatility than residential property values. The liquidation
      values of income producing properties may be adversely affected by risks
      generally incident to interests in real property, such as:





•
            changes
                or continued weakness in general or local economic
                conditions;


•
            changes
                or continued weakness in specific industry
                segments;


•
            declines
                in real estate values;


•
            declines
                in rental, room or occupancy rates in hotels, apartment complexes
                or
                commercial properties;


•
            increases
                in other operating expenses (including energy
                costs);


•
            the
                availability of refinancing at lower interest rates or better loan
                terms;


•
            changes
                in governmental rules, regulations and fiscal policies, including
                rent
                control ordinances, environmental legislation and
                taxation;


•
            increases
                in interest rates, real estate and personal property tax rates,
                and


•
            other
                factors beyond the control of the borrower or the
                lender.





We
      generally originate and acquire income producing property loans primarily to
      be
      held in our portfolio to maturity. Because the resale market for this type
      of
      loan is less liquid than the well-established secondary market for residential
      loans, should we decide to sell our income producing property loans, we may
      incur losses on any sale.





**The
      unseasoned nature of many of the loans we originated as part of our small
      balance multi-family real estate loan platform, along with our limited
      experience in originating loans nationwide, may lead to additional provisions
      for loan losses or charge-offs, which would hurt our
      profits.**





The
      national expansion of our real estate loan platform and, in particular, our
      small balance multi-family real estate loans has led to an increase in the
      number of these types of loans in our portfolio. Many of these loans are
      unseasoned and have not been subjected to unfavorable economic conditions.
      We
      have limited experience in originating loans outside the State of California
      and
      as a result do not have a significant payment history pattern with which to
      judge future collectibility. At December 31, 2006, $1.3 billion, or 45.6%,
      of
      our real estate secured loans were secured by properties located outside the
      state of California. As a result, it is difficult to predict the future
      performance of this portion of our real estate loan portfolio. These loans
      may
      have delinquency or charge-off levels above our historical experience, which
      could adversely affect our profitability.





**Our
      construction loans are based upon estimates of costs and value associated with
      the complete project. These estimates may be inaccurate.**





We
      originate construction loans for income producing properties, as well as for
      single family home construction. At December 31, 2006, construction loans
      totaled $347.8 million, or 11.7% of gross loans receivable. Construction lending
      involves additional risks because funds are advanced upon the security of the
      project, which is of uncertain value prior to its completion. There are also
      risks associated with the timely completion of the construction activities
      for
      their allotted costs, as a number of factors can result in delays and cost
      overruns, and the time needed to stabilize income producing properties or to
      sell residential tract developments. Because of the uncertainties inherent
      in
      estimating construction costs, as well as the market value of the completed
      project and the effects of governmental regulation of real property, it is
      relatively difficult to evaluate accurately the total funds required to complete
      a project and the related loan-to-value ratio. As a result, construction loans
      often involve the disbursement of substantial funds with repayment dependent,
      in
      part, on the success of the ultimate project and the ability of the borrower
      to
      sell or lease the property or refinance the indebtedness, rather than the
      ability of the borrower or guarantor to repay principal and interest. If our
      appraisal of the value of the completed project proves to be overstated, we
      may
      have inadequate security for the repayment of the loan upon completion of
      construction of the project and may incur a loss.





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          14
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 **Table
          of Contents**




**Our
      real estate lending also exposes us to the risk of environmental
      liabilities.**





In
      the
      course of our business, we may foreclose and take title to real estate, and
      could be subject to environmental liabilities with respect to these properties.
      We may be held liable to a governmental entity or to third persons for property
      damage, personal injury, investigation and clean-up costs incurred by these
      parties in connection with environmental contamination, or may be required
      to
      investigate or clean up hazardous or toxic substances, or chemical releases
      at a
      property. The costs associated with investigation or remediation activities
      could be substantial. In addition, as the owner or former owner of a
      contaminated site, we may be subject to common law claims by third parties
      based
      on damages and costs resulting from environmental contamination emanating from
      the property. If we ever become subject to significant environmental
      liabilities, our business, financial condition and results of operations could
      be materially and adversely affected.





**Repayment
      of our entertainment finance loans is primarily dependent on revenues from
      distribution contracts.**





Through
      ICBEF, a division of the Bank, we originate entertainment finance loans to
      independent producers of film and television on a senior secured basis. Although
      these loans are typically collateralized by a mortgage of copyright, security
      agreements and assigned sales contracts, the primary source of repayment is
      the
      revenue received by the borrower from the licensing of distribution rights.
      For
      this reason, our credit decisions are based in part on the creditworthiness
      and
      reputation of the producer, sales agent and distributors who have contracted
      to
      distribute the films. In many instances, the distribution contracts provide
      for
      multiple payments payable at certain milestones (such as execution of contract,
      commencement of principal photography or completion of principal photography).
      The maturity date of the loan is generally six to nine months after completion
      of the production. To the extent a distributor fails to make payment upon
      completion of the film, or the predicted level of revenue is less than expected,
      we may incur a loss if rights cannot be resold for the same amount or other
      loan
      collateral cannot cover required loan payments.





**Negative
      events in certain geographic areas, particularly California, could adversely
      affect us.**





Although
      we have significantly increased the geographic diversification of our loan
      portfolio since commencing our national expansion, our real estate loans remain
      heavily concentrated in the State of California, with approximately 54.4% of
      our
      real estate loans as of December 31, 2006 secured by collateral and made to
      borrowers in that state. In addition, as of that date, approximately 7.0% and
      8.1% of our real estate loans were secured by collateral and made to borrowers
      in the States of Arizona and Texas, respectively. We have no other state
      geographic concentration of loans in excess of three percent of our total gross
      loan portfolio. A worsening of economic conditions in California or in any
      other
      state in which we have a significant concentration of borrowers could have
      a
      material adverse effect on our business, by reducing demand for new financings,
      limiting the ability of customers to repay existing loans, and impairing the
      value of our real estate collateral and real estate owned properties. Real
      estate values are affected by various other factors, including changes in
      general or regional economic conditions, governmental rules or policies and
      natural disasters such as earthquakes, tornados and hurricanes.





**Our
      wholesale funding sources may prove insufficient to replace deposits and support
      our future growth.**





We
      must
      maintain sufficient funds to respond to the needs of depositors and borrowers.
      As a part of our liquidity management, we use a number of funding sources in
      addition to core deposit growth and repayments and maturities of loans and
      investments. As we continue to grow, we are likely to become more dependent
      on
      these sources, which include brokered certificates of deposit, repurchase
      agreements, federal funds purchased and Federal Home Loan Bank advances. Adverse
      operating results or changes in industry conditions could lead to an inability
      to replace these additional funding sources at maturity. Our financial
      flexibility will be severely constrained if we are unable to maintain our access
      to funding or if adequate financing is not available to accommodate future
      growth at acceptable interest rates. Finally, if we are required to rely more
      heavily on more expensive funding sources to support future growth, our revenues
      may not increase proportionately to cover our costs. In this case, our
      profitability would be adversely affected.





**Competition
      with other financial institutions could adversely affect our profitability.**





The
      banking and financial services industry is very competitive. Legal and
      regulatory developments have made it easier for new and sometimes unregulated
      competitors to compete with us. Consolidation among financial service providers
      has resulted in fewer very large national and regional banking and financial
      institutions holding a large accumulation of assets. These institutions
      generally have significantly greater resources, a wider geographic presence
      or
      greater accessibility. Our competitors sometimes are also able to offer more
      services, more favorable pricing or greater customer convenience than we do.
      In
      addition, our competition has grown from new banks and other financial services
      providers that target our existing or potential customers. As consolidation
      continues among large banks, we expect additional institutions to try to exploit
      our market.




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          15
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          of Contents**




Technological
      developments have allowed competitors including some non-depository
      institutions, to compete more effectively in local markets and have expanded
      the
      range of financial products, services and capital available to our target
      customers. If we are unable to implement, maintain and use such technologies
      effectively, we may not be able to offer products or achieve cost-efficiencies
      necessary to compete in our industry. In addition, some of these competitors
      have fewer regulatory constraints and lower cost structures.





**We
      rely heavily on the proper functioning of our technology.**





We
      rely
      on our computer systems, and outside sources providing technology, for much
      of
      our business, including recording our assets and liabilities. If our computer
      systems or outside technology sources fail, are not reliable or there is a
      breach of security, our ability to maintain accurate financial records may
      be
      impaired, which could materially affect our operations and financial condition.





**We
      are dependent upon the services of our management team.**





We
      are
      dependent upon the ability and experience of a number of our key management
      personnel who have substantial experience with our operations, the financial
      services industry and the markets in which we offer our services. It is possible
      that the loss of the services of one or more of our senior executives or key
      managers would have an adverse effect on our operations. Our success also
      depends on our ability to continue to attract, manage and retain other qualified
      personnel as we grow. We cannot assure you that we will continue to attract
      or
      retain such personnel.





**Terrorist
      activities could cause reductions in investor confidence and substantial
      volatility in real estate and securities markets.**





It
      is
      impossible to predict the extent to which terrorist activities may occur in
      the
      United States or other regions, or their effect on a particular security issue.
      It is also uncertain what effects any past or future terrorist activities and/or
      any consequent actions on the part of the United States government and others
      will have on the United States and world financial markets, local, regional
      and
      national economics, and real estate markets across the United States. Among
      other things, reduced investor confidence could result in substantial volatility
      in securities markets, a decline in general economic conditions and real estate
      related investments and an increase in loan defaults. Such unexpected losses
      and
      events could materially affect our results of operations.





**We
      are subject to extensive regulation that could restrict our activities and
      impose financial requirements or limitations on the conduct of our business.**





Bank
      holding companies and California-charted commercial banks operate in a highly
      regulated environment and are subject to supervision and examination by federal
      and state regulatory agencies. We are subject to the Bank Holding Company Act
      of
      1956, as amended, and to regulation and supervision by the FRB. Imperial Capital
      Bank is subject to regulation and supervision by the FDIC, and DFI. The cost
      of
      compliance with regulatory requirements may adversely affect our results of
      operations or financial condition. Federal and state laws and regulations govern
      numerous matters including: changes in the ownership or control of banks and
      bank holding companies; maintenance of adequate capital and the financial
      condition of a financial institution; permissible types, amounts and terms
      of
      extensions of credit and investments; permissible non-banking activities; the
      level of reserves against deposits; and restrictions on dividend payments.





The
      FDIC
      and DFI possess cease and desist powers to prevent or remedy unsafe or unsound
      practices or violations of law by banks subject to their regulation, and the
      FRB
      possesses similar powers with respect to bank holding companies. These and
      other
      restrictions limit the manner in which we may conduct our business and obtain
      financing.





**Item
      1B. Unresolved Staff Comments**





None.








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          16
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 **Table
          of Contents**





**Item
      2. Properties**





The
      following sets forth our material facilities as of December 31,
      2006.





**Locations**
            **Office
                Uses**
            **Square
                Footage**
            **Year
                Current Lease****Term
                Expires**La
                Jolla, CA
            Corporate
                Headquarters
            21,903
            2008Glendale,
                CA
            Loan
                Operations Division/Loan Administration/Asset
                Management/Operations Support
            28,467
            2012New
                York, NY
            East
                Coast Corporate Headquarters
            3,810
            2009Century
                City, CA
            ICB
                Entertainment Finance
            7,003
            2008Glendale,
                CA
            Bank
                Branch
            4,791
            2012Encino,
                CA
            Bank
                Branch
            5,145
            2009San
                Francisco, CA
            Bank
                Branch
            5,005
            2014Costa
                Mesa, CA
            Bank
                Branch
            3,609
            2011San
                Diego, CA
            Bank
                Branch
            3,046
            2011Beverly
                Hills, CA
            Bank
                Branch
            2,218
            2010Carson
                City, NV
            Bank
                Branch
            3,000
            2008Walnut
                Creek, CA
            Loan
                Origination Office
            2,220
            2009Boston,
                MA
            Loan
                Origination Office
            3,309
            2009Atlanta,
                GA
            Loan
                Origination Office
            3,148
            2008Fairfield,
                CT
            Loan
                Origination Office
            1,992
            2007Redbank,
                NJ
            Loan
                Origination Office
            1,800
            2009Houston,
                TX
            Loan
                Origination Office
            3,420
            2011





For
      additional information regarding our premises, see “Item 8. Financial Statements
      and Supplementary Data — Notes to Consolidated Financial Statements - Note 5”.





Management
      believes that our present facilities are adequate for its current needs, and
      that alternative or additional space, if necessary, will be available on
      reasonable terms.





**Item
      3. Legal Proceedings**





We
      are
      party to certain legal proceedings incidental to our business. Management
      believes that the outcome of such proceedings, in the aggregate, will not have
      a
      material effect on our business, financial condition or results of
      operations.





**Item
      4. Submission of Matters to a Vote of Security
      Holders**





No
      matter
      was submitted to a vote of security holders, through the solicitation of proxies
      or otherwise, during the quarter ended December 31, 2006.





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          17
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 **Table
          of Contents**





**PART
      II**





**Item
      5. Market for Registrant’s Common Equity, Related
      Stockholder Matters** , **and
      Issuer Purchases of Equity Securities**





In
      December 2006, we filed an application and received approval to list our common
      stock on the New York Stock Exchange (“NYSE”). Our common stock began trading on
      the NYSE on December 29, 2006 under the symbol “IMP”. Prior to trading on the
      NYSE, our common stock traded on the NASDAQ Global Select Market under the
      symbol “ITLA”. As of March 5, 2007, there were 102 holders of record of ITLA
      Capital’s common stock representing an estimated 4,171 beneficial shareholders
      with a total of 5,527,651 shares outstanding.





The
      following table sets forth, for the periods indicated, the range of high and
      low
      trade prices for ITLA Capital’s common stock and the cash dividends declared per
      share. Stock price data reflects inter-dealer prices, without retail mark-up,
      mark-down or commission.





**Market
                Price**
            
            **Average
                Daily****High**
            
            
            **Low**
            
            
            **Close**
            
            
            **Closing
                Price****2006**
              4th
                Quarter
            
            $
            58.96
            
            $
            50.75
            
            $
            57.91
            
            $
            54.913rd
                Quarter
            
            
            55.15
            
            
            49.10
            
            
            53.76
            
            
            51.762nd
                Quarter
            
            
            52.93
            
            
            46.14
            
            
            52.58
            
            
            49.551st
                Quarter
            
            
            50.20
            
            
            44.65
            
            
            48.22
            
            
            47.28**2005**
              4th
                Quarter
            
            $
            53.55
            
            $
            47.35
            
            $
            48.85
            
            $
            50.533rd
                Quarter
            
            
            59.30
            
            
            50.50
            
            
            52.49
            
            
            54.302nd
                Quarter
            
            
            56.95
            
            
            43.36
            
            
            53.90
            
            
            49.621st
                Quarter
            
            
            58.31
            
            
            49.37
            
            
            49.96
            
            
            53.89





**Cash
                dividends declared per share**
            
            **2006**
            
            **2005**1st
                Quarter
            
            $
            0.15
            
            $
            —2nd
                Quarter
            
            
            0.15
            
            
            —3rd
                Quarter
            
            
            0.15
            
            
            —4th
                Quarter
            
            
            0.15
            
            
            —Total
            
            $
            0.60
            
            $
            —





As
      a bank
      holding company, ITLA Capital’s ability to pay dividends may be affected by
      regulations, including those governing the payment of dividends by the Bank
      to
      ITLA Capital, which could be a source of funds for any dividends paid by ITLA
      Capital, as well as by the policies of the Federal Reserve Board. Under federal
      regulations, the dollar amount of dividends the Bank may pay depends upon its
      capital position and recent net income. Generally, if the Bank satisfies its
      regulatory capital requirements, it may make dividend payments up to the limits
      prescribed under state law and FDIC regulations.





Payments
      of the distributions on our trust preferred securities from the special purpose
      subsidiary trusts we sponsored are fully and unconditionally guaranteed by
      us.
      The junior subordinated debentures that we have issued to our subsidiary trusts
      are senior to our shares of common stock. As a result, we must make required
      payments on the junior subordinated debentures before any dividends can be
      paid
      on our common stock and, in the event of our bankruptcy, dissolution or
      liquidation, the interest and principal obligations under the junior
      subordinated debentures must be satisfied before any distributions can be made
      on our common stock. We may defer the payment of interest on each of the junior
      subordinated debentures for a period not to exceed 20 consecutive quarters,
      provided that the deferral period does not extend beyond the stated maturity.
      During such deferral period, distributions on the corresponding trust preferred
      securities will also be deferred and we may not pay cash dividends to the
      holders of shares of our common stock.





We
      expect
      to pay a cash dividend of $0.16 per share for each quarter in 2007; however,
      there can be no assurance as to future dividends because they are dependent
      on
      our future earnings, capital requirements and financial condition. See “Item 1.
      Business—Regulation” and Note 16 to our consolidated financial statements
      included in Item 8 of this report.








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          18
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 **Table
          of Contents**





**Stock
      Repurchases**





The
      following table sets forth the repurchases of our common stock for the fiscal
      quarter ended December 31, 2006.





**Period**
            
            **Total
                Number of Shares Purchased**
            
            **Average
                Price Paid per Share**
            
            **Total
                Number of Shares Purchased as Part of Publicly Announced Plans or
                Programs**
            
            **Maximum
                Number of Shares that May Yet Be Purchased Under the Plans or Programs*****(1)***October
                1, 2006 toOctober
                31, 2006
            
            
            30,000
            
            $
            54.80
            
            
            30,000
            
            
            307,011November
                1, 2006 toNovember
                30, 2006
            
            
            —
            
            
            —
            
            
            —
            
            
            307,011December
                1, 2006 toDecember
                31, 2006
            
            
            9,050
            
            
            55.52
            
            
            9,050
            
            
            297,961Total
            
            
            39,050
            
            $
            54.97
            
            
            39,050
            
            
            297,961


____________


*(1)
      The repurchases during the three months ended December 31, 2006 were made under
      the eleventh extension of our stock repurchase program, which was announced
      on
      October 18, 2005. On March 14, 2006, the twelfth extension of our stock
      repurchase program was announced. The extensions authorized the repurchase
      of an
      additional 5% of the outstanding shares as of their respective authorization
      dates. At December 31, 2006, a total of 297,961 shares remained available for
      repurchase under the eleventh and twelfth extensions.*





**Performance
      Graph**





The
      following graph, prepared by SNL Securities, L.C., compares the performance
      of
      our Common Stock with that of the NASDAQ Composite Index (U.S. Companies) and
      the SNL Bank Index over a five year period through December 31, 2006. The
      comparison assumes $100 was invested on December 31, 2001 in our Common Stock
      and in each of the foregoing indices and assumes the reinvestment of all
      dividends. Historical stock price performance is not necessarily indicative
      of
      future stock price performance.










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          19
          -
 **Table
          of Contents**








**12/31/01**
            **12/31/02**
            **12/31/03**
            **12/31/04**
            **12/31/05**
            **12/31/06**ITLA
                Capital Corporation
            100.00
            158.54
            239.03
            280.49
            233.06
            279.48NASDAQ
                Composite*(1)*
            100.00
            68.76
            103.67
            113.16
            115.57
            127.58SNL
                Bank Index
            100.00
            91.69
            123.69
            138.61
            140.50
            164.35


____________


*(1)
      The NASDAQ Composite index has been used rather than a New York Stock Exchange
      related index because we believe it is more relevant since we traded only for
      one day on the New York Stock Exchange in 2006.*








**Item
      6. SelectedFinancial Data**





The
      following condensed consolidated statements of operations and financial
      condition and selected performance ratios as of December 31, 2006, 2005, 2004,
      2003, and 2002 and for the years then ended have been derived from our audited
      consolidated financial statements. The information below is qualified in its
      entirety by the detailed information included elsewhere herein and should be
      read along with “Item 7. Management’s Discussion and Analysis of Financial
      Condition and Results of Operations” and “Item 8. Financial Statements and
      Supplementary Data.”





**For
                the years ended December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****(in
                thousands, except per share amount)****Condensed
                Consolidated Statements of Operations**
              Total
                interest income
            
            $
            226,501
            
            $
            178,158
            
            $
            124,954
            
            $
            115,977
            
            $
            110,608Total
                interest expense
            
            
            132,075
            
            
            86,486
            
            
            41,418
            
            
            30,867
            
            
            37,322Net
                interest income before provision for loan losses
            
            
            94,426
            
            
            91,672
            
            
            83,536
            
            
            85,110
            
            
            73,286Provision
                for loan losses
            
            
            5,000
            
            
            10,250
            
            
            4,725
            
            
            7,760
            
            
            9,030Net
                interest income after provision for loan losses
            
            
            89,426
            
            
            81,422
            
            
            78,811
            
            
            77,350
            
            
            64,256Non-interest
                income*(1)*
            
            
            2,772
            
            
            6,574
            
            
            14,508
            
            
            15,240
            
            
            373Non-interest
                expense:Compensation
                and benefits
            
            
            21,265
            
            
            21,737
            
            
            21,444
            
            
            18,870
            
            
            13,954Occupancy
                and equipment
            
            
            7,439
            
            
            7,177
            
            
            5,924
            
            
            4,839
            
            
            3,165Other
                general and administrative expenses
            
            
            17,743
            
            
            17,344
            
            
            14,666
            
            
            13,006
            
            
            9,913Real
                estate owned expense, net
            
            
            369
            
            
            193
            
            
            712
            
            
            1,212
            
            
            1,323Total
                non-interest expense
            
            
            46,816
            
            
            46,451
            
            
            42,746
            
            
            37,927
            
            
            28,355Income
                before provision for income taxes and minority interest in income
                of
                subsidiary
            
            
            45,382
            
            
            41,545
            
            
            50,573
            
            
            54,663
            
            
            36,274Minority
                interest in income of subsidiary*(2)(3)*
            
            
            —
            
            
            —
            
            
            —
            
            
            6,083
            
            
            3,481Income
                before provision for income taxes
            
            
            45,382
            
            
            41,545
            
            
            50,573
            
            
            48,580
            
            
            32,793Provision
                for income taxes
            
            
            18,493
            
            
            17,482
            
            
            19,948
            
            
            18,946
            
            
            12,788NET
                INCOME
            
            $
            26,889
            
            $
            24,063
            
            $
            30,625
            
            $
            29,634
            
            $
            20,005BASIC
                EARNINGS PER SHARE
            
            $
            4.83
            
            $
            4.19
            
            $
            5.04
            
            $
            4.91
            
            $
            3.35DILUTED
                EARNINGS PER SHARE
            
            $
            4.71
            
            $
            4.04
            
            $
            4.75
            
            $
            4.55
            
            $
            3.16





**As
                of December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****(in
                thousands, except per share amount)****Condensed
                Consolidated Statements of Financial Condition**Cash
                and cash equivalents
            
            $
            30,448
            
            $
            93,747
            
            $
            87,580
            
            $
            178,318
            
            $
            160,848Investment
                securities available-for-sale, at fair value
            
            
            99,527
            
            
            92,563
            
            
            66,845
            
            
            53,093
            
            
            54,677Investment
                securities held-to-maturity, at amortized cost
            
            
            193,512
            
            
            233,880
            
            
            296,028
            
            
            —
            
            
            —Stock
                in Federal Home Loan Bank
            
            
            48,984
            
            
            43,802
            
            
            23,200
            
            
            17,966
            
            
            16,934Loans,
                net
            
            
            2,973,368
            
            
            2,523,480
            
            
            1,793,815
            
            
            1,505,424
            
            
            1,438,234Interest
                receivable
            
            
            20,753
            
            
            16,287
            
            
            10,695
            
            
            8,958
            
            
            9,158Other
                real estate owned, net
            
            
            6,729
            
            
            3,960
            
            
            —
            
            
            7,048
            
            
            12,593Premises
                and equipment, net
            
            
            7,851
            
            
            6,718
            
            
            6,645
            
            
            5,766
            
            
            4,197Deferred
                income taxes
            
            
            11,513
            
            
            12,717
            
            
            10,468
            
            
            11,609
            
            
            13,822Goodwill
            
            
            3,118
            
            
            3,118
            
            
            3,118
            
            
            3,118
            
            
            3,118Other
                assets
            
            
            19,707
            
            
            20,924
            
            
            19,677
            
            
            26,915
            
            
            8,384Total
                Assets
            
            $
            3,415,510
            
            $
            3,051,196
            
            $
            2,318,071
            
            $
            1,818,215
            
            $
            1,721,965Deposit
                accounts
            
            $
            2,059,405
            
            $
            1,735,428
            
            $
            1,432,032
            
            $
            1,147,017
            
            $
            1,065,911Federal
                Home Loan Bank advances and other borrowings
            
            
            1,010,000
            
            
            992,557
            
            
            584,224
            
            
            378,003
            
            
            407,762Account
                payable and other liabilities
            
            
            38,168
            
            
            32,130
            
            
            20,491
            
            
            19,696
            
            
            10,006Junior
                subordinated debentures*(3)*
            
            
            86,600
            
            
            86,600
            
            
            86,600
            
            
            86,600
            
            
            —Guaranteed
                preferred beneficial interests in the Company’s junior subordinated
                deferrable interest debentures*(3)*
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            81,595Shareholders’
                equity
            
            
            221,337
            
            
            204,481
            
            
            194,724
            
            
            186,899
            
            
            156,691Total
                Liabilities and Shareholders’ Equity
            
            $
            3,415,510
            
            $
            3,051,196
            
            $
            2,318,071
            
            $
            1,818,215
            
            $
            1,721,965Book
                value per share
            
            $
            42.07
            
            $
            37.85
            
            $
            35.09
            
            $
            31.30
            
            $
            27.11


____________





*(1)*  *For
      2004 and 2003, includes fee income earned in connection with the tax refund
      lending program pursuant to our strategic alliance with various subsidiaries
      of
      Household International, Inc. (“Household”), a wholly owned subsidiary of HSBC
      Holdings plc (NYSE-HBC). This program was terminated by Household in 2004
      subsequent to the tax filing season.*


*(2)*  *Represents
      distributions on our trust preferred securities.*


*(3)*  *As
      a
      result of our adoption of FASB Interpretation No. 46 (revised) issued by the
      Financial Accounting Standards Board effective December 31, 2003, we
      de-consolidated the trusts which issued our trust preferred securities. The
      effect of this was to recognize investments in the trusts in other assets,
      to
      report the amount of junior subordinated debentures we issued to these trusts
      as
      a liability in our consolidated balance sheets and, beginning on the date of
      adoption, to recognize the interest expense on the junior subordinated
      debentures in our consolidated statements of income. Prior to the
      de-consolidation, we reported our trust preferred securities in the mezzanine
      section of our balance sheet as “guaranteed preferred beneficial interests in
      the Company’s junior subordinated deferrable interest debentures” and recognized
      distributions paid to the holders of the trust preferred securities as “minority
      interest in income of subsidiary” in our consolidated statement of income.*






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**As
                of and for the years ended December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****Selected
                Performance Ratios**
              Return
                on average assets
            
            
            0.86
            %
            
            0.90
            %
            
            1.47
            %
            
            1.71
            %
            
            1.41
            %Return
                on average shareholders’ equity
            
            
            12.75
            %
            
            12.12
            %
            
            15.44
            %
            
            16.88
            %
            
            13.56
            %Net
                interest margin*(1)*
            
            
            3.06
            %
            
            3.43
            %
            
            4.12
            %
            
            5.03
            %
            
            5.30
            %Average
                interest earning assets to average interest bearing
                liabilities
            
            
            108.21
            %
            
            109.32
            %
            
            127.50
            %
            
            135.03
            %
            
            113.94
            %Efficiency
                ratio*(2)*
            
            
            47.79
            %
            
            47.08
            %
            
            42.87
            %
            
            36.59
            %
            
            36.40
            %Total
                general and administrative expense to average assets
            
            
            1.49
            %
            
            1.73
            %
            
            2.02
            %
            
            2.29
            %
            
            1.90
            %Average
                shareholders’ equity to average assets
            
            
            6.78
            %
            
            7.39
            %
            
            9.51
            %
            
            11.16
            %
            
            10.36
            %Dividend
                payout ratio*(3)*
            
            
            12.74
            %
            
            —
            
            
            —
            
            
            —
            
            
            —Nonperforming
                assets to total assets
            
            
            0.97
            %
            
            0.92
            %
            
            0.63
            %
            
            0.86
            %
            
            1.08
            %Allowance
                for loan losses to loans held for investment, net*(4)*
            
            
            1.53
            %
            
            1.71
            %
            
            1.94
            %
            
            2.14
            %
            
            2.31
            %Allowance
                for loan loss to nonaccrual loans
            
            
            175.40
            %
            
            180.59
            %
            
            242.17
            %
            
            392.26
            %
            
            555.61
            %Net
                charge-offs to average loans held for investment, net
            
            
            0.10
            %
            
            0.09
            %
            
            0.16
            %
            
            0.52
            %
            
            0.36
            %


____________





*(1)*  *Net
      interest margin represents net interest income divided by total average interest
      earning assets.*


*(2)*  *Efficiency
      ratio represents general and administrative expenses divided by non-interest
      income and net interest income before provision for loan
      losses.*


*(3)*  *Dividends
      declared per common share as a percentage of net income per diluted
      share.*


*(4)*  *Loans
      held for investment, net, represent loans before allowance for loan
      losses.*




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The
      following table includes supplementary quarterly operating results and per
      share
      information for the past two years. The data presented should be read along
      with
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations” and with “Item 8. Financial Statements and Supplementary Data”
included elsewhere in this report.





**Quarterly
      Operations (Unaudited)**




**For
                  the Quarters Ended****March
                  31**
              
              **June
                  30**
              
              **September
                  30**
              
              **December
                  31****(in
                  thousands, except per share amounts)****2006**Interest
                  income
              
              $
              51,428
              
              $
              55,760
              
              $
              59,130
              
              $
              60,183Interest
                  expense
              
              
              28,518
              
              
              31,776
              
              
              34,840
              
              
              36,941Net
                  interest income before provision for loan losses
              
              
              22,910
              
              
              23,984
              
              
              24,290
              
              
              23,242Provision
                  for loan losses
              
              
              750
              
              
              1,500
              
              
              1,500
              
              
              1,250Non-interest
                  income
              
              
              717
              
              
              607
              
              
              578
              
              
              870General
                  and administrative expense
              
              
              12,037
              
              
              11,833
              
              
              11,474
              
              
              11,103Total
                  real estate owned expense, net
              
              
              106
              
              
              (177
              )
              
              287
              
              
              153Provision
                  for income taxes
              
              
              4,402
              
              
              4,689
              
              
              4,759
              
              
              4,643Net
                  income
              
              
              6,332
              
              
              6,746
              
              
              6,848
              
              
              6,963Basic
                  earnings per share
              
              $
              1.13
              
              $
              1.22
              
              $
              1.24
              
              $
              1.26Diluted
                  earnings per share
              
              $
              1.10
              
              $
              1.18
              
              $
              1.20
              
              $
              1.22**2005**Interest
                  income
              
              $
              36,752
              
              $
              41,680
              
              $
              48,830
              
              $
              50,896Interest
                  expense
              
              
              15,010
              
              
              19,551
              
              
              24,991
              
              
              26,934Net
                  interest income before provision for loan losses
              
              
              21,742
              
              
              22,129
              
              
              23,839
              
              
              23,962Provision
                  for loan losses
              
              
              750
              
              
              1,500
              
              
              1,500
              
              
              6,500Non-interest
                  income
              
              
              (20
              )
              
              509
              
              
              485
              
              
              5,600General
                  and administrative expense
              
              
              11,230
              
              
              11,069
              
              
              11,973
              
              
              11,986Total
                  real estate owned expense, net
              
              
              (11
              )
              
              —
              
              
              —
              
              
              204Provision
                  for income taxes
              
              
              4,102
              
              
              4,230
              
              
              4,583
              
              
              4,567Net
                  income
              
              
              5,651
              
              
              5,839
              
              
              6,268
              
              
              6,305Basic
                  earnings per share
              
              $
              0.97
              
              $
              1.01
              
              $
              1.09
              
              $
              1.11Diluted
                  earnings per share
              
              $
              0.93
              
              $
              0.98
              
              $
              1.06
              
              $
              1.08




**Item
        7. Management’sDiscussion and Analysis of Financial
        Condition and Results**  **of
        Operations**
 
 **Application
        of Critical Accounting Policies and Accounting Estimates**
 
 The
        accounting and reporting policies followed by us conform, in all material
        respects, to accounting principles generally accepted in the United States
        and
        to general practices within the financial services industry. The preparation
        of
        financial statements in conformity with accounting principles generally accepted
        in the United States requires management to make estimates and assumptions
        that
        affect the amounts reported in the financial statements and accompanying
        notes.
        While we base our estimates on historical experience, current information
        and
        other factors deemed to be relevant, actual results could differ from those
        estimates.


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We
      consider accounting estimates to be critical to reported financial results
      if
      (i) the accounting estimate requires management to make assumptions about
      matters that are highly uncertain and (ii) different estimates that
      management reasonably could have used for the accounting estimate in the current
      period, or changes in the accounting estimate that are reasonably likely to
      occur from period to period, could have a material impact on our financial
      statements. Accounting polices related to the allowance for loan losses are
      considered to be critical, as these policies involve considerable subjective
      judgment and estimation by management. We also consider our accounting polices
      related to other real estate owned to be critical due to the potential
      significance of these activities and the estimates involved. Critical accounting
      policies, and our procedures related to these policies, are described in detail
      below. Also see Note 1 — Organization and Summary of Significant Accounting
      Policies in the accompanying notes to the consolidated financial statements
      included elsewhere in this report.





*Allowance
      for Loan Losses (“ALL”).* Our
      management assesses the adequacy of the ALL prior to the end of each calendar
      quarter. This assessment includes procedures to estimate the allowance and
      test
      the adequacy and appropriateness of the resulting balance.





We
      establish the ALL amount separately for two different risk groups (1) individual
      loans (loans with specifically identifiable risks); and (2) homogeneous
      loans (groups of loan with similar characteristics). We base the allocation
      for
      individual loans primarily on risk rating grades assigned to each of these
      loans
      as a result of our loan management and review processes. We then assign each
      risk-rating grade a loss ratio, which is determined based on the experience
      of
      management and our independent loan review process. We estimate losses on
      impaired loans based on estimated cash flows discounted at the loan’s original
      effective interest rate or based on the underlying collateral value. Based
      on
      management’s experience, we also assign loss ratios to groups of loans. These
      loss ratios are assigned to the various homogenous categories of the portfolio.





The
      level
      of the allowance also reflects management’s continuing evaluation of geographic
      and credit concentrations, specific credit risks, loan loss experience, current
      loan portfolio quality, present economic, political and regulatory conditions
      and unidentified losses inherent in the current loan portfolio. While management
      utilizes its best judgment and information available, the ultimate adequacy
      of
      the allowance is dependent upon a variety of factors beyond our control,
      including the performance of our loan portfolio, the economy, changes in
      interest rates and the view of the regulatory authorities toward loan
      classifications.





We
      test
      the ALL balance by comparing the balance in the ALL to historical trends and
      peer information. Our management team then evaluates the result of the
      procedures performed, including the result of our testing, and concludes on
      the
      appropriateness of the balance of the ALL in its entirety. See the section
      captioned “Allowance for Loan Losses and Nonperforming Assets” elsewhere in this
      discussion for further details of the risk factors considered by management
      in
      estimating the necessary level of the allowance for loan losses.





*Other
      Real Estate Owned.* Properties acquired through foreclosure, or in lieu of foreclosure, are
      transferred to the other real estate owned portfolio and initially recorded
      at
      estimated fair value less the estimated costs to sell the property. Subsequent
      to foreclosure, valuations are periodically performed by management and the
      assets are carried at the lower of cost or estimated fair value less the
      estimated costs of disposition. The fair value of other real estate owned is
      generally determined from appraisals obtained from independent
      appraisers.





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          of Contents**




**Adoption
      and Pending Adoption of Recent Accounting Pronouncements**





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004),
“Share-Based Payment”, which is a revision of SFAS No. 123. SFAS No. 123(R)
      supersedes APB Opinion No. 25. Generally, the approach to accounting for
      share-based payments in SFAS No. 123(R) is similar to the approach described
      in
      SFAS No. 123. However, SFAS No. 123(R) requires share-based payments to
      employees, including grants of employee stock options, to be recognized in
      the
      financial statements based on their grant date fair values (i.e., pro forma
      disclosure is no longer an alternative to financial statement recognition).
      We
      adopted SFAS No. 123(R) on January 1, 2006 using a modified version of
      prospective application (“modified prospective application”). Under modified
      prospective application, as it is applicable to us, SFAS No. 123(R) applies
      to
      new awards and to awards modified, repurchased, or cancelled after January
      1,
      2006. Additionally, compensation cost for the portion of awards for which the
      requisite service has not been rendered (generally referring to non-vested
      awards) that are outstanding as of January 1, 2006 must be recognized as the
      remaining requisite service is rendered over periods after the adoption of
      SFAS
      No. 123(R). The attribution of compensation cost for those earlier awards will
      be based on the same method and on the same grant-date fair values previously
      determined for the pro forma disclosures required for companies that did not
      adopt the fair value accounting method for stock-based employee
      compensation.





Total
      stock-based compensation expense included in our consolidated statement of
      income for the year ended December 31, 2006 was approximately $266,000
      ($165,000, net of tax, or $0.03 per diluted share). No stock-based compensation
      expense was included in the consolidated statements of income for the years
      ended December 31, 2005 and 2004. Unrecognized stock-based compensation expense
      related to unvested stock options was approximately $66,000 at December 31,
      2006. At that date, the weighted-average period over which the unrecognized
      expense was expected to be recognized was 2.22 years.





In
      February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments”— an amendment of SFAS Nos. 133 and 140. SFAS No. 155
      permits fair value remeasurement for any hybrid financial instrument that
      contains an embedded derivative that otherwise would require bifurcation,
      clarifies which interest-only strips and principal-only strips are not subject
      to the requirements of SFAS No. 133, establishes a requirement to evaluate
      interests in securitized financial assets to identify interests that are
      freestanding derivatives or that are hybrid financial instruments that contain
      an embedded derivative requiring bifurcation, clarifies that concentrations
      of
      credit risk in the form of subordination are not embedded derivatives, and
      amends SFAS No. 140 to eliminate the prohibition on a qualifying special purpose
      entity from holding a derivative financial instrument that pertains to a
      beneficial interest other than another derivative financial instrument. This
      statement is effective for us on January 1, 2007. Management does not expect
      the
      adoption of SFAS No. 155 to have a material impact on our financial condition
      or
      results of operations.





In
      March
      2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Assets”. This statement amends SFAS No. 140, “Accounting for Transfers and
      Servicing of Financial Assets and Extinguishments of Liabilities”, with respect
      to the accounting for separately recognized servicing assets and servicing
      liabilities. SFAS No. 156 requires companies to recognize a servicing asset
      or
      servicing liability each time it undertakes an obligation to service a financial
      asset by entering into a servicing contract. The statement permits a company
      to
      choose either the amortized cost method or fair value measurement method for
      each class of separately recognized servicing assets. This statement is
      effective for us on January 1, 2007. Management does not expect the adoption
      of
      SFAS No. 156 to have a material impact on our financial condition or results
      of
      operations.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS
      No. 157 defines fair value, establishes a framework for measuring fair value
      in
      generally accepted accounting principles, and expands disclosures about fair
      value measurements. SFAS No. 157 is effective for us on January 1, 2008.
      Management is currently evaluating the impact of the adoption of SFAS No. 157
      on
      our financial condition and results of operations.





In
      June
      2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
      establishes a single model to address accounting for uncertainty in tax
      positions. FIN 48 clarifies the accounting for uncertainty in income taxes
      by
      prescribing a recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken, or expected
      to be
      taken, in a tax return. The interpretation also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure and transition requirements. FIN 48 is effective for us
      on
      January 1, 2007. Management does not expect the adoption of FIN 48 to have
      a
      material impact on our financial condition or results of
      operations.





In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”,
      which is a replacement of APB Opinion No. 20, “Accounting Changes”, and SFAS No.
      3, “Reporting Accounting Changes in Interim Financial Statements”. SFAS No. 154
      applies to all voluntary changes in accounting principle, and changes the
      requirements for accounting for and reporting of a change in accounting
      principle. SFAS No. 154 requires retrospective application to prior periods’
financial statements of a voluntary change in accounting principle unless it
      is
      impracticable. APB Opinion No. 20 previously required that most voluntary
      changes in accounting principle be recognized by including in net income of
      the
      period of the change the cumulative effect of changing to the new accounting
      principle. The adoption of SFAS No. 154 on January 1, 2006 did not have a
      material impact on our financial condition or results of
      operations.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities." SFAS No. 159 provides companies
      with an option to report selected financial assets and liabilities at fair
      value.  The objective of SFAS No. 159 is to reduce both complexity in
      accounting for financial instruments and the volatility in earnings caused
      by
      measuring related assets and liabilities differently. SFAS No. 159 also
      establishes presentation and disclosure requirements designed to facilitate
      comparisons between companies that choose different measurement attributes
      for
      similar types of assets and liabilities. SFAS No. 159 is effective for us on
      January 1, 2008. Management does not expect the adoption of SFAS No. 159 to
      have
      a material impact on our financial condition or results of
      operations.




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          24
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          of Contents**




**General**





The
      following discussion and analysis reviews the financial condition and results
      of
      our consolidated operations, including our significant consolidated
      subsidiaries: Imperial Capital Bank and Imperial Capital Real Estate Investment
      Trust.





The
      following discussion and analysis is intended to identify the major factors
      that
      influenced our financial condition as of December 31, 2006 and 2005 and our
      results of operations for the years ended December 31, 2006, 2005 and 2004.
      Our
      primary business involves the acceptance of customer deposits and the
      origination and purchase of loans secured by income producing real estate and,
      to a lesser extent, the origination of entertainment finance loans.





Consolidated
      net income in 2006 was $26.9 million, or $4.71 per diluted share, compared
      to
      $24.1 million, or $4.04 per diluted share in 2005 and $30.6 million, or $4.75
      per diluted share in 2004. The increase in net income in 2006 was primarily
      due
      to an increase in net interest income before provision for loan losses, which
      increased 3.0% to $94.4 million during the year ended December 31, 2006,
      compared to $91.7 million for the prior year. This increase was primarily due
      to
      the growth in the average balance of our loan portfolio, and adjustable rate
      loans repricing to higher current market interest rates, partially offset by
      additional interest expense incurred due to the growth in the average balance
      of
      interest bearing liabilities, deposits and other interest bearing liabilities
      repricing to higher current market interest rates, and the addition of new
      borrowings. Net income was further augmented by a $5.3 million decrease in
      the
      provision for loan losses recorded during 2006 compared to the prior year.
      The
      provision recorded during 2005 reflected the impact of a $29.3 million increase
      in our other loans of concern and a $9.6 million increase in non-performing
      loans during the year. Despite the increase in our overall loan portfolio during
      2006, the level of other loans of concern and non-performing loans stabilized
      in
      2006 compared to the prior year. Other loans of concern were $67.0 million
      and
      $66.4 million, respectively, at December 31, 2006 and 2005. Other loans of
      concern consist of performing loans which have known information that have
      caused management to be concerned about the borrowers ability to comply with
      present loan repayment terms. Non-performing loans totaled $26.3 million and
      $24.3 million, respectively, at December 31, 2006 and 2005. As a percentage
      of
      our total loan portfolio, the amount of other loans of concern and
      non-performing loans decreased to 2.22% and 0.88%, respectively, at December
      31,
      2006, compared to 2.32% and 0.95%, respectively, at December 31, 2005. Net
      income was also impacted by a $3.8 million decline in non-interest income earned
      during the year as compared to the prior year, as a result of a gain recorded
      during 2005 in connection with the sale of substantially all of our franchise
      loan portfolio. There were no comparable loan sales in 2006.





The
      decrease in net income in 2005 as compared to 2004, was primarily due to the
      absence of interest and fee income earned in connection with the Bank’s tax
      refund lending (“RAL”) program, which terminated at the conclusion of the 2004
      tax season. Despite the termination of the RAL program, net interest income
      before provision for loan losses increased 9.7% to $91.7 million for the year
      ended December 31, 2005, compared to $83.5 million for the year ended December
      31, 2004. This increase was due to the growth in the average balance of our
      loan
      portfolio, a decrease in the average balance of low yielding short-term and
      overnight investments, and an increase in the average balance of higher yielding
      investment securities held-to-maturity as compared to 2004. The decline in
      the
      average balance of short-term and overnight investment securities was a result
      of the termination of the RAL program, which generated a substantial level
      of
      liquidity during the quarter ended March 31, 2004. We invested this additional
      liquidity in short-term and overnight investments, which earned a lower yield
      than we generally earn on our investment portfolio. The increase in interest
      income was partially offset by additional interest expense incurred due to
      the
      growth in the average balance of our interest bearing liabilities as compared
      to
      2004, deposits repricing to higher market interest rates, and the addition
      of
      borrowings at higher market interest rates. Our earnings were negatively
      impacted by a $5.5 million increase in provision for loan losses recorded during
      2005, as well as a $3.7 million increase in non-interest expense. Non-interest
      expense increased due to the investment in the national expansion of our real
      estate lending platform.





Total
      loan production, including the unfunded portion of loans, was $1.6 billion
      for
      the year ended December 31, 2006, as compared to $1.6 billion and $1.0 billion,
      respectively, for the years ended December 31, 2005 and 2004. Loan production
      in
      2006 consisted of the origination of $693.1 million of commercial real estate
      loans, $293.7 million of small balance multi-family real estate loans and $102.7
      million of entertainment finance loans, and the acquisition of $497.8 million
      of
      commercial and multi-family real estate loans by our wholesale loan
      operations.





Our
      average total assets increased approximately 15.9% during 2006 to $3.1 billion.
      Average cash and investment securities totaled $419.8 million in 2006 compared
      to $432.8 million in 2005, a decrease of $13.0 million, or 3.0%. Average loans
      receivable totaled $2.7 billion in 2006 compared to $2.2 billion in 2005, an
      increase of $429.0 million, or 19.2%. Average interest bearing deposit accounts
      totaled $1.8 billion in 2006 compared to $1.7 billion in 2005, an increase
      of
      $189.9 million, or 11.5%. FHLB advances and other borrowings averaged $926.9
      million in 2006, compared to $707.4 million in 2005, an increase of $219.5
      million, or 31.0%.





The
      allowance for loan losses as a percentage of our total loans was 1.5% at
      December 31, 2006, as compared to 1.7% at December 31, 2005. During the year
      ended December 31, 2006, we had net charge-offs of $2.8 million, compared to
      $1.9 million during the prior year.





At
      December 31, 2006, shareholders' equity totaled $221.3 million, or 6.5% of
      total
      assets. During 2006, we announced our first regular quarterly cash dividend
      of
      $0.15 per share. During the year, we declared total dividends of $0.60 per
      share, or **** approximately
      $3.2 million in total. For the year ended December 31, 2006, we repurchased
      228,781 shares at an average price of $49.19 per share. Since beginning share
      repurchases in April 1997, a total of 3.5 million shares have been repurchased,
      returning approximately $101.1 million of capital to our shareholders at an
      average price of $28.64 per share. Through our stock repurchase program, all
      of
      our contributed capital has been returned to shareholders. ITLA Capital’s book
      value per share of common stock was $42.07 as of December 31, 2006, an increase
      of 11.1% from $37.85 per share as of December 31, 2005.








-
          25
          -
 **Table
          of Contents**





**Results
      of Operations**





The
      following table presents, for the periods indicated, our condensed average
      balance sheet information, together with interest income and yields earned
      on
      average interest earning assets and interest expense and rates paid on average
      interest bearing liabilities. Average balances are computed using daily average
      balances. Nonaccrual loans are included in loans receivable.





**Years
                Ended December 31,****2006**
            
            **2005**
            
            **2004****Average****Balance**
            
            **Income/****Expense**
            
            **Yield/**
              **Rate**
            
            **Average**
              **Balance**
            
            **Income/**
              **Expense**
            
            **Yield/**
              **Rate**
            
            **Average**
              **Balance**
            
            **Income/**
              **Expense**
            
            **Yield/**
              **Rate****(dollars
                in thousands)****Assets**
              Cash
                and investment securities
            
            $
            419,762
            
            $
            19,181
            
            
            4.57
            %
            $
            432,774
            
            $
            18,438
            
            
            4.26
            %
            $
            419,452
            
            $
            9,291
            
            
            2.22
            %Real
                estate loans*(1)*
            
            
            2,588,452
            
            
            200,322
            
            
            7.74
            %
            
            2,016,691
            
            
            141,061
            
            
            6.99
            %
            
            1,368,384
            
            
            96,460
            
            
            7.05
            %Franchise
                loans*(1)*
            
            
            11,578
            
            
            475
            
            
            4.10
            %
            
            121,768
            
            
            9,972
            
            
            8.19
            %
            
            125,280
            
            
            8,608
            
            
            6.87
            %Entertainment
                finance loans*(1)*
            
            
            59,262
            
            
            5,620
            
            
            9.48
            %
            
            89,420
            
            
            7,724
            
            
            8.64
            %
            
            96,227
            
            
            7,040
            
            
            7.32
            %Commercial
                and other loans*(1)*
            
            
            8,962
            
            
            903
            
            
            10.08
            %
            
            11,382
            
            
            963
            
            
            8.46
            %
            
            16,234
            
            
            3,555
            
            
            21.90
            %Total
                loans receivable
            
            
            2,668,254
            
            
            207,320
            
            
            7.77
            %
            
            2,239,261
            
            
            159,720
            
            
            7.13
            %
            
            1,606,125
            
            
            115,663
            
            
            7.20
            %Total
                interest earning assets
            
            
            3,088,016
            
            $
            226,501
            
            
            7.33
            %
            
            2,672,035
            
            $
            178,158
            
            
            6.67
            %
            
            2,025,577
            
            $
            124,954
            
            
            6.17
            %Non-interest
                earning assets
            
            
            70,936
            
            
            
            
            
            
            
            
            51,549
            
            
            
            
            
            
            
            
            94,739Allowance
                for loan losses
            
            
            (46,366
            )
            
            
            
            
            
            
            
            (37,978
            )
            
            
            
            
            
            
            
            (35,214
            )Total
                assets
            
            $
            3,112,586
            
            
            
            
            
            
            
            $
            2,685,606
            
            
            
            
            
            
            
            $
            2,085,102**Liabilities
                and Shareholders’ Equity**Interest
                bearing demand accounts
            
            $
            29,047
            
            $
            836
            
            
            2.88
            %
            $
            51,684
            
            $
            1,236
            
            
            2.39
            %
            $
            80,052
            
            $
            1,409
            
            
            1.76
            %Money
                market and passbook accounts
            
            
            207,962
            
            
            9,379
            
            
            4.51
            %
            
            177,213
            
            
            5,308
            
            
            3.00
            %
            
            140,637
            
            
            2,680
            
            
            1.91
            %Time
                certificates
            
            
            1,603,210
            
            
            74,941
            
            
            4.67
            %
            
            1,421,415
            
            
            47,263
            
            
            3.33
            %
            
            1,003,555
            
            
            23,827
            
            
            2.37
            %Total
                interest bearing deposit accounts
            
            
            1,840,219
            
            
            85,156
            
            
            4.63
            %
            
            1,650,312
            
            
            53,807
            
            
            3.26
            %
            
            1,224,244
            
            
            27,916
            
            
            2.28
            %FHLB
                advances and other borrowings
            
            
            926,916
            
            
            38,722
            
            
            4.18
            %
            
            707,391
            
            
            25,508
            
            
            3.61
            %
            
            277,828
            
            
            7,343
            
            
            2.64
            %Junior
                subordinated debentures
            
            
            86,600
            
            
            8,197
            
            
            9.47
            %
            
            86,600
            
            
            7,171
            
            
            8.28
            %
            
            86,600
            
            
            6,159
            
            
            7.11
            %Total
                interest bearing liabilities
            
            
            2,853,735
            
            $
            132,075
            
            
            4.63
            %
            
            2,444,303
            
            $
            86,486
            
            
            3.54
            %
            
            1,588,672
            
            $
            41,418
            
            
            2.61
            %Non-interest
                bearing demand accounts
            
            
            12,738
            
            
            
            
            
            
            
            
            27,671
            
            
            
            
            
            
            
            
            8,023Other
                non-interest bearing liabilities
            
            
            35,173
            
            
            
            
            
            
            
            
            15,086
            
            
            
            
            
            
            
            
            290,077Shareholders’
                equity
            
            
            210,940
            
            
            
            
            
            
            
            
            198,546
            
            
            
            
            
            
            
            
            198,330Total
                liabilities and shareholders’ equity
            
            $
            3,112,586
            
            
            
            
            
            
            
            $
            2,685,606
            
            
            
            
            
            
            
            $
            2,085,102Net
                interest spread*(2)*
            
            
            
            
            
            
            
            
            2.70
            %
            
            
            
            
            
            
            
            3.13
            %
            
            
            
            
            
            
            
            3.56
            %Net
                interest income before provisions for loan losses
            
            
            
            
            $
            94,426
            
            
            
            
            
            
            
            $
            91,672
            
            
            
            
            
            
            
            $
            83,536Net
                interest margin*(3)*
            
            
            
            
            
            
            
            
            3.06
            %
            
            
            
            
            
            
            
            3.43
            %
            
            
            
            
            
            
            
            4.12
            %


____________


*(1)*  *Before
      allowance for loan losses and net of deferred loan fees and costs. Net loan
      fee
      accretion of $2.8 million, $2.9 million and $1.8 million was included in net
      interest income for 2006, 2005 and 2004, respectively.*


*(2)*  *Average
      yield on interest earning assets minus average rate paid on interest bearing
      liabilities.*


*(3)*  *Net
      interest income divided by total average interest earning assets.*





Our
      primary source of revenue is net interest income. Our net interest income is
      affected by (a) the difference between the yields earned on interest earning
      assets, including loans and investments, and the interest rates paid on interest
      bearing liabilities, including deposits and borrowings, which is referred to
      as
“net interest spread”, and (b) the relative amounts of interest earning assets
      and interest bearing liabilities. As of December 31, 2006, 2005 and 2004, our
      ratio of average interest earning assets to average interest bearing liabilities
      was 108.2%, 109.3% and 127.5%, respectively.





The
      following table sets forth a summary of the changes in interest income and
      interest expense resulting from changes in average interest earning asset and
      interest bearing liability balances and changes in average interest rates.
      The
      change in interest due to both volume and rate has been allocated to change
      due
      to volume and rate in proportion to the relationship of the absolute dollar
      amounts of each.




**2006
                  vs. 2005**
              
              **2005
                  vs. 2004****Increase
                  (Decrease) Due to:**
              
              **Increase
                  (Decrease) Due to:****Volume**
              
              **Rate**
              
              **Total**
              
              **Volume**
              
              **Rate**
              
              **Total****(in
                  thousands)**Interest
                  and fees earned on:Loans,
                  net
              
              $
              32,413
              
              $
              15,187
              
              $
              47,600
              
              $
              45,191
              
              $
              (1,134
              )
              $
              44,057Cash
                  and investment securities
              
              
              (567
              )
              
              1,310
              
              
              743
              
              
              306
              
              
              8,841
              
              
              9,147Total
                  increase in interest income
              
              
              31,846
              
              
              16,497
              
              
              48,343
              
              
              45,497
              
              
              7,707
              
              
              53,204Interest
                  paid on:Deposit
                  accounts
              
              
              6,739
              
              
              24,610
              
              
              31,349
              
              
              11,584
              
              
              14,307
              
              
              25,891FHLB
                  advances and other borrowings
              
              
              8,758
              
              
              4,456
              
              
              13,214
              
              
              14,677
              
              
              3,488
              
              
              18,165Junior
                  subordinated debentures
              
              
              —
              
              
              1,026
              
              
              1,026
              
              
              —
              
              
              1,012
              
              
              1,012Total
                  increase in interest expense
              
              
              15,497
              
              
              30,092
              
              
              45,589
              
              
              26,261
              
              
              18,807
              
              
              45,068Increase
                  (decrease) in net interest income
              
              $
              16,349
              
              $
              (13,595
              )
              $
              2,754
              
              $
              19,236
              
              $
              (11,100
              )
              $
              8,136







-
          26
          -
 **Table
          of Contents**




*2006
      Compared to 2005*





**Net
      Interest Income**





Net
      interest income before provision for loan losses increased to $94.4 million
      for
      the year ended December 31, 2006, compared to $91.7 million for the prior year,
      an increase of 3.0%. The increase was primarily caused by an increase in
      interest income, attributable to the significant growth in the average balance
      of our loan portfolio and adjustable rate loans repricing to higher current
      market interest rates. The increase in interest income was partially offset
      by
      additional interest expense incurred due to the likewise significant growth
      in
      the average balance of our interest bearing liabilities as compared to the
      prior
      year, deposits and other interest bearing liabilities repricing to higher
      current market interest rates, and the addition of new borrowings.





The
      average yield on our total loan portfolio was 7.77% in 2006 compared to 7.13%
      in
      2005. The average yield on our real estate loan portfolio was 7.74% in 2006
      compared to 6.99% in 2005. Our adjustable rate mortgages are primarily indexed
      to either six month LIBOR or the Prime Rate with interest rate floors, below
      which the loan’s contractual interest rate may not adjust. Approximately 51.3%
      of our loan portfolio was comprised of adjustable rate loans at December 31,
      2006, and approximately 45.5% of the loan portfolio was comprised of hybrid
      loans, which, after an initial fixed rate period of three or five years, will
      convert to an adjustable interest rate for the remaining term of the loan.
      Our
      adjustable rate loans generally re-price on a quarterly or semi-annual basis
      with increases generally limited to maximum adjustments of 2% per year up to
      5%
      for the life of the loan. As of December 31, 2006, approximately $2.7 billion,
      or 90.5% of our adjustable rate loan portfolio contained interest rate floors,
      below which the loans’ contractual interest rate may not adjust. The inability
      of our loans to adjust downward can contribute to increased income in periods
      of
      declining interest rates, and also assists us in our efforts to limit the risks
      to earnings resulting from changes in interest rates, subject to the risk that
      borrowers may refinance these loans during periods of declining interest rates.
      At December 31, 2006, the weighted average floor interest rate of our adjustable
      rate loan portfolio was 6.03%. At that date, approximately $95.0 million or
      3.2%
      of our adjustable rate loan portfolio was at the floor interest rate. At
      December 31, 2006, 52.0% of the adjustable rate loans outstanding had a lifetime
      interest rate cap. The weighted-average lifetime interest rate cap on our
      adjustable rate loan portfolio was 11.60%. At December 31, 2006, none of the
      loans in our adjustable rate loan portfolio were at the cap rate.





Interest
      expense on interest bearing liabilities increased $45.6 million, or 52.7%,
      to
      $132.1 million in 2006 compared to $86.5 million in 2005. The increase was
      primarily due to an increase in interest expense on deposits and FHLB advances
      and other borrowings. Interest expense from deposit accounts increased $31.3
      million, or 58.3%, to $85.2 million in 2006 compared to $53.8 million in 2005
      due to the growth in interest bearing deposits during 2006 and the increase
      in
      the average rate paid on deposits as a result of higher current market interest
      rates as compared to the prior year. The average rate paid on deposits was
      4.63%
      in 2006 compared to 3.26% in 2005.





Interest
      expense on FHLB advances and other borrowings increased $13.2 million, or 51.8%,
      to $38.7 million in 2006 compared to $25.5 million in 2005. This increase was
      primarily caused by additional borrowings utilized to finance lending activities
      during the year. The average balance of FHLB advances and other borrowings
      increased $219.5 million, or 31.0%, to $926.9 million in 2006 compared to $707.4
      million in 2005. The increase was further caused by an increase in the rate
      paid
      on FHLB advances and other borrowings, which was 4.18% in 2006 as compared
      to
      3.61% in 2005.





**Provision
      for Loan Losses**





The
      provision for loan losses was $5.0 million for the year ended December 31,
      2006,
      compared to $10.3 million for the prior year. These provisions for loan losses
      were recorded to provide reserves adequate to support known and inherent losses
      in our loan portfolio and for specific reserves as of December 31, 2006 and
      2005, respectively. The provision recorded during 2005 reflected the impact
      of a
      $29.3 million increase in our other loans of concern, a $9.6 million increase
      in
      non-performing loans during the year and a 40.3% increase in our loan portfolio.
      Despite the significant continued growth in the size of our overall loan
      portfolio during 2006, the level of other loans of concern and non-performing
      loans remained relatively flat in 2006 compared to the prior year. Other loans
      of concern were $67.0 million and $66.4 million, respectively, at December
      31,
      2006 and 2005. Non-performing loans totaled $26.3 million and $24.3 million,
      respectively, at December 31, 2006 and 2005. As a percentage of our total loan
      portfolio, the amount of other loans of concern and non-performing loans
      decreased to 2.22% and 0.88%, respectively, at December 31, 2006, compared
      to
      2.32% and 0.95%, respectively, at December 31, 2005. See also “Credit Risk
      Elements - Allowance for Loan Losses and Nonperforming Assets”.








-
          27
          -
 **Table
          of Contents**





**Non-interest
      Income**





Non-interest
      income was $2.8 million for the year ended December 31, 2006, compared to $6.6
      million for the prior year. In 2005, we recorded a $4.9 million gain in
      connection with the sale of substantially all of our franchise loan portfolio.
      There were no comparable loan sales in 2006.





**Non-interest
      Expense**





**General
      and Administrative Expense**





General
      and administrative expenses increased to $46.4 million for the year ended
      December 31, 2006, compared to $46.3 million for the prior year. Our efficiency
      ratio (defined as general and administrative expenses as percentage of net
      revenue) was 47.8% for the year ended December 31, 2006, compared to 47.1%
      for
      the same period last year. Full time equivalent associates averaged 259 in
      2006
      compared to 244 in 2005.





**Income
      Taxes**





Provision
      for income taxes increased to $18.5 million in 2006 compared to $17.5 million
      in
      2005. The increase in provision for income taxes was due to the increase in
      taxable income earned in 2006, partially offset by a decline in our effective
      tax rate. The effective tax rate was 40.75% and 42.08%, respectively, for 2006
      and 2005.





At
      December 31, 2006, we had a net deferred tax asset of $11.5 million. The
      deferred tax asset related primarily to loan loss provisions recognized on
      our
      financial statements that have not yet been recognized on our income tax
      returns. During 2006 and 2005, we had no deferred tax assets relating to net
      operating loss carryforward deductions. The deferred tax assets were considered
      fully realizable. Accordingly, no valuation allowance on the deferred tax assets
      was established in 2006 and 2005.





*2005
      Compared to 2004*





**Net
      Interest Income**





Net
      interest income before provision for loan losses increased to $91.7 million
      for
      the year ended December 31, 2005, compared to $83.5 million for 2004, an
      increase of 9.7%. The increase was primarily caused by the growth in the average
      balance of our loan portfolio, a decrease in the average balance of low yielding
      short-term and overnight investments, and an increase in the average balance
      of
      higher yielding investment securities held-to-maturity as compared to 2004.
      The
      decline in the average balance of short-term and overnight investment securities
      was a result of the termination of the RAL program, which generated a
      substantial level of liquidity during the quarter ended March 31, 2004. We
      invested this additional liquidity in short-term and overnight investments,
      which earned a lower yield than we generally earn on our current investment
      portfolio. The increase in net interest income was partially offset by
      additional interest expense incurred due to the growth in the average balance
      of
      our interest bearing liabilities as compared to the prior year, deposits
      repricing to higher market interest rates, and the addition of new borrowings
      at
      higher market interest rates.





The
      average yield on our total loan portfolio was 7.13% in 2005 compared to 7.20%
      in
      2004. The average yield on our real estate loan portfolio was 6.99% in 2005
      compared to 7.05% in 2004. Approximately 61.8% of our loan portfolio was
      comprised of adjustable rate loans at December 31, 2005, and approximately
      35.8%
      of the loan portfolio was comprised of hybrid loans. As of December 31, 2005,
      approximately $2.3 billion or 92.7% of our adjustable rate loan portfolio
      contained interest rate floors, below which the loans’ contractual interest rate
      may not adjust. At December 31, 2005, the weighted average floor interest rate
      of our adjustable rate loan portfolio was 6.13%. At that date, approximately
      $172.0 million or 7.1% of our adjustable rate loan portfolio was at the floor
      interest rate. At December 31, 2005, 68.2% of the adjustable rate loans
      outstanding had a lifetime interest rate cap. The weighted-average lifetime
      interest rate cap on our adjustable rate loan portfolio was 11.33%. At December
      31, 2005, none of the loans in our adjustable rate loan portfolio were at the
      cap rate.








-
          28
          -
 **Table
          of Contents**





Interest
      expense on interest bearing liabilities increased $45.1 million, or 108.8%,
      to
      $86.5 million in 2005 compared to $41.4 million in 2004. The increase was
      primarily due to an increase in interest expense on deposits and FHLB advances
      and other borrowings. Interest expense from deposit accounts increased $25.9
      million, or 92.7%, to $53.8 million in 2005 compared to $27.9 million in 2004
      due to the growth in interest bearing deposits during 2005 and the increase
      in
      the average rate paid on deposits as a result of higher current market interest
      rates as compared to the prior year. The average rate paid on deposits was
      3.26%
      in 2005 compared to 2.28% in 2004.





Interest
      expense on FHLB advances and other borrowings increased $18.2 million, or
      247.4%, to $25.5 million in 2005 compared to $7.3 million in 2004. This increase
      was primarily caused by additional borrowings utilized to finance lending and
      investment activities during 2005. The average balance of FHLB advances and
      other borrowings increased $429.6 million, or 154.6%, to $707.4 million in
      2005
      compared to $277.8 million in 2004. The increase was further impacted by an
      increase in the rate paid on FHLB advances and other borrowings, which was
      3.61%
      in 2005 as compared to 2.64% in 2004.





**Provision
      for Loan Losses**





Provision
      for loan losses increased to $10.3 million in 2005 compared to $4.7 million
      in
      2004. The provision for loan losses was recorded to provide reserves adequate
      to
      support the known and inherent risk of loss in the loan portfolio, and for
      specific reserves required at December 31, 2005. The provision increased during
      2005 due to an increase in our other loans of concern, a 40.3% increase in
      our
      loan portfolio, and the increase in non-performing loans. Non-performing loans
      totaled $24.3 million and $14.7 million, respectively, at December 31, 2005
      and
      2004. This increase in non-performing loans was primarily attributable to the
      migration of three loans to non-performing status during 2005.





**Non-interest
      Income**





Non-interest
      income decreased $7.9 million to $6.6 million in 2005 compared to $14.5 million
      in 2004. Non-interest income for 2005 consisted primarily of a $4.9 million
      gain
      recorded in connection with the sale of franchise loans. During 2004,
      non-interest income primarily consisted of fee income earned in connection
      with
      the Bank’s RAL program. During 2004, we earned $9.3 million of net premiums on
      the sale of RAL loans and $4.6 million of processing and administrative fees.
      Because the RAL program related to the filing of income tax returns, transaction
      activity was concentrated during the tax season. This resulted in our earning
      substantially all of our RAL program income in the first quarter of
      2004.





**Non-interest
      Expense**





**General
      and Administrative Expense**





General
      and administrative expenses increased to $46.3 million for the year ended
      December 31, 2005, compared to $42.0 million for the prior year. The increase
      in
      general and administrative expenses was caused by the additional overhead
      expenses incurred in connection with the national expansion of our loan
      production platform compared to 2004. This increase was primarily the result
      of
      a full year of overhead expenses incurred during 2005 for offices that were
      opened throughout 2004. Our efficiency ratio (defined as general and
      administrative expenses as percentage of net revenue) was 47.1% for the year
      ended December 31, 2005, compared to 42.9% for the year ended December 31,
      2004.
      The variance in our efficiency ratio was primarily due to the decline in net
      revenue earned as a result of the termination of the RAL program and the
      continued national expansion of our small balance multi-family lending platform.
      Full time equivalent associates averaged 244 in 2005 compared to 236 in
      2004.





**Income
      Taxes**





Provision
      for income taxes decreased to $17.5 million in 2005 compared to $19.9 million
      in
      2004. The decrease in provision for income taxes was due to the decline in
      taxable income earned in 2005. The effective tax rate was 42.08% and 39.44%,
      respectively, for 2005 and 2004. The increase in the effective tax rate was
      principally due to a reduction in the allowable deduction on tax exempt income
      earned on loans located in designated redevelopment and enterprise
      zones.








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          29
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          of Contents**





At
      December 31, 2005, we had a net deferred tax asset of $12.7 million. The
      deferred tax asset related primarily to loan loss provisions recognized on
      our
      financial statements that have not yet been recognized on our income tax
      returns. During 2005 and 2004, we had no deferred tax assets relating to net
      operating loss carry forward deductions. The deferred tax asset was considered
      fully realizable. Accordingly, no valuation allowance on the deferred tax asset
      was established in 2005 and 2004.





**Financial
      Condition**





*At
      December 31, 2006 Compared with December 31, 2005*





Total
      assets increased by $364.3 million, or 11.9%, to $3.4 billion at December 31,
      2006 compared to $3.1 billion at December 31, 2005. The increase in total assets
      was primarily due to a $452.1 million increase in our loan portfolio, partially
      offset by a $63.3 million decrease in cash and cash equivalents and a $40.4
      million decline in investment securities held-to-maturity. The increase in
      the
      loan portfolio was primarily due to our significant loan production, partially
      offset by loan repayments, as well as loan prepayments, received during the
      year. The growth in assets was primarily funded by the increase in deposits
      of
      $324.0 million and an increase in FHLB advances and other borrowings of $17.4
      million. The increase in shareholders’ equity was primarily due to the retention
      of net income and a $3.7 million increase in contributed capital, which was
      primarily related to the exercise of stock options, partially offset by treasury
      stock purchases of $11.3 million and cash dividends of $3.2
      million.





*At
      December 31, 2005 Compared with December 31, 2004*





Total
      assets increased by $733.1 million, or 31.6%, to $3.1 billion at December 31,
      2005 compared to $2.3 billion at December 31, 2004. The increase in total assets
      was primarily due to a $738.0 million increase in our loan portfolio, a $25.7
      million increase in investment securities available-for-sale, and a $20.6
      million increase in FHLB stock, partially offset by a $62.1 million decline in
      investment securities held-to-maturity and an $8.3 million increase in the
      allowance for loan losses. The increase in the loan portfolio was primarily
      due
      to our loan production, partially offset by loan repayements, as well as loan
      prepayments, received during the year. The growth in assets was primarily funded
      by the increase in deposits of $303.4 million and an increase in FHLB advances
      and other borrowings of $408.3 million. The increase in shareholders’ equity was
      primarily due to the retention of net income and an $8.7 million increase in
      contributed capital, which is primarily related to the exercise of stock
      options, partially offset by treasury stock purchases of $22.6
      million.





**Loans
      Receivable, Net**





The
      following table shows the comparison of our loan portfolio by major categories
      as of the dates indicated.





**December
                31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****(in
                thousands)**Real
                estate loans
            
            $
            2,546,904
            
            $
            2,154,372
            
            $
            1,387,973
            
            $
            1,196,729
            
            $
            1,189,258Construction
                loans
            
            
            347,751
            
            
            302,932
            
            
            183,207
            
            
            129,540
            
            
            101,422Total
                real estate loans
            
            
            2,894,655
            
            
            2,457,304
            
            
            1,571,180
            
            
            1,326,269
            
            
            1,290,680Entertainment
                finance loans
            
            
            74,204
            
            
            66,514
            
            
            99,729
            
            
            98,630
            
            
            119,283Franchise
                loans
            
            
            9,334
            
            
            13,705
            
            
            137,477
            
            
            102,128
            
            
            54,672Commercial
                and other loans
            
            
            9,346
            
            
            7,264
            
            
            11,931
            
            
            6,869
            
            
            4,3142,987,539
            
            
            2,544,787
            
            
            1,820,317
            
            
            1,533,896
            
            
            1,468,949Unamortized
                premium
            
            
            18,138
            
            
            14,582
            
            
            6,346
            
            
            5,429
            
            
            7,898Deferred
                loan origination costs (fees), net
            
            
            13,740
            
            
            7,928
            
            
            2,635
            
            
            (500
            )
            
            (5,604
            )3,019,417
            
            
            2,567,297
            
            
            1,829,298
            
            
            1,538,825
            
            
            1,471,243Allowance
                for loan losses
            
            
            (46,049
            )
            
            (43,817
            )
            
            (35,483
            )
            
            (33,401
            )
            
            (33,009
            )$
            2,973,368
            
            $
            2,523,480
            
            $
            1,793,815
            
            $
            1,505,424
            
            $
            1,438,234








-
          30
          -
 **Table
          of Contents**





The
      contractual maturities of our loan portfolio at December 31, 2006 are as
      follows:





**Loans
                Maturing in****Less
                Than**
              **One
                Year**
            
            **Between**
              **One
                and**
              **Five
                Years**
            
            **Greater**
              **Than
                Five**
              **Years**
            
            **Total****(dollars
                in thousands)**Real
                estate loans
            
            $
            83,393
            
            $
            277,568
            
            $
            2,185,943
            
            $
            2,546,904Construction
                loans
            
            
            217,368
            
            
            130,383
            
            
            —
            
            
            347,751Entertainment
                finance loans
            
            
            60,165
            
            
            14,039
            
            
            —
            
            
            74,204Franchise
                loans
            
            
            4,372
            
            
            223
            
            
            4,739
            
            
            9,334Commercial
                and other loans
            
            
            4,812
            
            
            4,534
            
            
            —
            
            
            9,346$
            370,110
            
            $
            426,747
            
            $
            2,190,682
            
            $
            2,987,539Loans
                with fixed interest rates
            
            $
            369
            
            $
            19,903
            
            $
            32,595
            
            $
            52,867Loans
                with adjustable interest rates
            
            
            369,741
            
            
            406,844
            
            
            2,158,087
            
            
            2,934,672$
            370,110
            
            $
            426,747
            
            $
            2,190,682
            
            $
            2,987,539Percentage
                with adjustable interest rates
            
            
            99.9
            %
            
            95.3
            %
            
            98.5
            %
            
            98.2
            %





The
      table
      above should not be regarded as a forecast of future cash collections because
      a
      substantial portion of loans may be renewed or repaid prior to contractual
      maturity and have adjustable interest rates.





The
      following table sets forth certain information regarding the real property
      collateral securing our real estate loan portfolio as of December 31,
      2006.





**Number
                of**
            
            **Gross
                Loan**
            
            **Percent
                of**
            
            
            **Range
                of Principal Balance**
            
            **Non-Accrual****Loans**
            
            **Amount**
            
            **Total**
            
            
            **Min**
            
            **Max**
            
            **Average**
            
            **Loans****(dollars
                in thousands)**Income
                Producing Property Loans:Multi-family
                (5 or more units)
            
            
            2,565
            
            $
            1,865,992
            
            
            64.47
            %
            
            $
            2
            
            $
            11,944
            
            $
            727
            
            $
            8,897Retail
            
            
            117
            
            
            139,955
            
            
            4.83
            %
            
            
            12
            
            
            10,010
            
            
            1,196
            
            
            965Office
            
            
            82
            
            
            113,215
            
            
            3.91
            %
            
            
            12
            
            
            13,500
            
            
            1,381
            
            
            —Hotel
            
            
            15
            
            
            38,115
            
            
            1.32
            %
            
            
            66
            
            
            6,886
            
            
            2,541
            
            
            878Industrial/warehouse
            
            
            48
            
            
            60,799
            
            
            2.10
            %
            
            
            79
            
            
            7,000
            
            
            1,267
            
            
            —Mixed-use
            
            
            75
            
            
            75,928
            
            
            2.62
            %
            
            
            7
            
            
            9,697
            
            
            1,012
            
            
            1,041Mobile
                home parks
            
            
            42
            
            
            29,751
            
            
            1.03
            %
            
            
            253
            
            
            2,171
            
            
            708
            
            
            —Assisted
                living
            
            
            5
            
            
            21,885
            
            
            0.76
            %
            
            
            1,462
            
            
            7,328
            
            
            4,377
            
            
            —Storage
            
            
            10
            
            
            34,718
            
            
            1.20
            %
            
            
            684
            
            
            5,950
            
            
            3,472
            
            
            —Other
            
            
            153
            
            
            102,868
            
            
            3.55
            %
            
            
            2
            
            
            10,069
            
            
            672
            
            
            1,900Total
                income producing
            
            
            3,112
            
            
            2,483,226
            
            
            85.79
            %
            
            
            
            
            
            
            
            
            
            
            
            13,681Construction
                and Land:Construction
            
            
            78
            
            
            347,751
            
            
            12.02
            %
            
            
            282
            
            
            23,763
            
            
            4,458
            
            
            —Land
            
            
            9
            
            
            22,722
            
            
            0.78
            %
            
            
            368
            
            
            7,565
            
            
            2,525
            
            
            —Total
                construction and land
            
            
            87
            
            
            370,473
            
            
            12.80
            %
            
            
            
            
            
            
            
            
            
            
            
            —Single-family
                mortgages:Single-family
                (1-4 units)
            
            
            97
            
            
            40,956
            
            
            1.41
            %
            
            
            7
            
            
            942
            
            
            422
            
            
            4103,296
            
            $
            2,894,655
            
            
            100.00
            %
            
            
            
            
            
            
            
            
            
            
            $
            14,091








-
          31
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          of Contents**





The
      following table sets forth the location of the collateral for our real estate
      loan portfolios as of December 31, 2006.





**Number****of****Loans**
            
            **Gross
                Loan****Amount**
            
            **Percent****of****Total****(dollars
                in thousands)**Southern
                California:Los
                Angeles County
            
            
            805
            
            $
            643,344
            
            
            22.23
            %Riverside
                County
            
            
            48
            
            
            120,311
            
            
            4.16
            %Orange
                County
            
            
            56
            
            
            83,354
            
            
            2.88
            %San
                Diego County
            
            
            66
            
            
            66,201
            
            
            2.29
            %San
                Bernardino County
            
            
            59
            
            
            50,863
            
            
            1.76
            %All
                other Southern California Counties
            
            
            5
            
            
            4,223
            
            
            0.15
            %Total
                Southern California
            
            
            1,039
            
            
            968,296
            
            
            33.47
            %Northern
                California:San
                Francisco County
            
            
            85
            
            
            109,903
            
            
            3.80
            %Alameda
                      County
            
            
            110
            
            
            102,407
            
            
            3.54
            %Fresno
                County
            
            
            60
            
            
            56,386
            
            
            1.95
            %Contra
                Costa County
            
            
            45
            
            
            50,260
            
            
            1.74
            %Santa
                Clara County
            
            
            45
            
            
            35,255
            
            
            1.22
            %San
                Mateo County
            
            
            25
            
            
            35,127
            
            
            1.21
            %Kern
                County
            
            
            39
            
            
            27,775
            
            
            0.96
            %San
                Joaquin
            
            
            34
            
            
            25,244
            
            
            0.87
            %Sacramento
            
            
            32
            
            
            24,970
            
            
            0.86
            %All
                other Northern California Counties
            
            
            116
            
            
            138,499
            
            
            4.78
            %Total
                Northern California
            
            
            591
            
            
            605,826
            
            
            20.93
            %Outside
                California:Texas
            
            
            228
            
            
            241,136
            
            
            8.33
            %Arizona
            
            
            197
            
            
            208,323
            
            
            7.20
            %Georgia
            
            
            56
            
            
            84,915
            
            
            2.93
            %Florida
            
            
            91
            
            
            79,035
            
            
            2.73
            %New
                York
            
            
            109
            
            
            69,306
            
            
            2.39
            %Nevada
            
            
            74
            
            
            57,834
            
            
            2.00
            %Massachusetts
            
            
            95
            
            
            56,402
            
            
            1.95
            %Colorado
            
            
            69
            
            
            44,306
            
            
            1.53
            %Connecticut
            
            
            95
            
            
            39,225
            
            
            1.36
            %Oklahoma
            
            
            38
            
            
            34,250
            
            
            1.18
            %Ohio
            
            
            61
            
            
            34,171
            
            
            1.18
            %Oregon
            
            
            55
            
            
            33,326
            
            
            1.15
            %New
                Jersey
            
            
            58
            
            
            30,044
            
            
            1.04
            %Tennessee
            
            
            32
            
            
            29,085
            
            
            1.00
            %Washington
            
            
            38
            
            
            25,899
            
            
            0.89
            %Other
                U.S. states
            
            
            370
            
            
            253,276
            
            
            8.74
            %Total
                Outside California
            
            
            1,666
            
            
            1,320,533
            
            
            45.60
            %3,296
            
            $
            2,894,655
            
            
            100.00
            %





Although
      we generally seek to limit risks associated with our portfolio of real estate
      and construction loans by limiting the geographic concentration and by varying
      the types of underlying collateral, significant concentration risks still
      remain. Concentrations of loans in certain geographic regions, for example,
      cause our risk associated with these loans to be closely associated with the
      general economic and social environment of the region. Localized economic and
      competitive conditions, natural disasters, possible terrorist activities or
      social conditions all may affect the values of collateral located within a
      particular geographic area. In addition, certain types of properties may be
      more
      or less subject to changes in prevailing economic, competitive or social
      conditions.








-
          32
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          of Contents**





The
      following table sets forth certain information with respect to our loan
      originations and purchases. Fundings related to the tax refund lending programs
      terminated in 2004, and premiums paid and discounts taken on loans purchased
      in
      the secondary market are not included below.





**As
                of and for the Years Ended December 31,****2006**
            
            **2005**
            
            **2004****(dollars
                in thousands)**Gross
                real estate loans originated
            
            $
            960,187
            
            $
            846,685
            
            $
            721,090Gross
                entertainment finance loans originated
            
            
            102,703
            
            
            68,687
            
            
            92,179Gross
                franchise loans originated
            
            
            —
            
            
            2,352
            
            
            52,145Gross
                commercial and other loans originated
            
            
            26,662
            
            
            1,863
            
            
            58,342Gross
                real estate loans purchased
            
            
            498,785
            
            
            723,822
            
            
            136,452Total
                loan production
            
            $
            1,588,337
            
            $
            1,643,409
            
            $
            1,060,208Gross
                loans at end of period
            
            $
            2,987,539
            
            $
            2,544,787
            
            $
            1,820,317Gross
                loans weighted-average portfolio yield
            
            
            7.68
            %
            
            7.13
            %
            
            7.20
            %Average
                size of loans retained in the Company’s portfolio
            
            $
            1,110
            
            $
            803
            
            $
            919





**Investment
      Securities**





At
      December 31, 2006, our investment securities totaled $293.0 million, or
      8.6% of our total assets. Our investment securities, including the
      mortgage-backed securities portfolio, are managed in accordance with a written
      investment policy adopted by the Board of Directors. It is our general policy
      to
      purchase U.S. Government securities and federal agency obligations and other
      investment grade securities. At December 31, 2006, our entire mortgage-backed
      securities and collateralized mortgage obligations portfolios consisted of
      investment grade securities issued by Fannie Mae and Freddie Mac. Our investment
      securities portfolio at December 31, 2006, contained neither securities of
      any issuer nor tax-exempt securities with an aggregate book value in excess
      of
      10% of stockholders’ equity, excluding those issued by United States agencies
      including Fannie Mae, Freddie Mac and the Federal Home Loan Bank.  See
“Item 8. Financial Statements and Supplementary Data-Notes to Consolidated
      Financial Statements-Note 2”.





The
      following table shows the amortized cost and approximate fair value of
      investment securities at the dates indicated.





**December
                31,****2006**
            
            **2005**
            
            **2004****Amortized**
              **Cost**
            
            **Fair**
              **Value**
            
            **Amortized**
              **Cost**
            
            **Fair**
              **Value**
            
            **Amortized**
              **Cost**
            
            **Fair**
              **Value****(in
                thousands)**Investment
                securities available-for-saleU.S.
                agency securities
            
            $
            62,554
            
            $
            62,184
            
            $
            89,897
            
            $
            88,829
            
            $
            61,637
            
            $
            61,347Collateralized
                mortgage obligations
            
            
            34,991
            
            
            35,127
            
            
            —
            
            
            —
            
            
            —
            
            
            —Residual
                interest in securitized loans
            
            
            1,911
            
            
            2,039
            
            
            3,257
            
            
            3,570
            
            
            5,055
            
            
            5,368Equity
                securities
            
            
            13
            
            
            177
            
            
            16
            
            
            164
            
            
            25
            
            
            130Total
                investment securities available-for-sale
            
            $
            99,469
            
            $
            99,527
            
            $
            93,170
            
            $
            92,563
            
            $
            66,717
            
            $
            66,845Investment
                securities held-to-maturity
              Mortgage-backed
                securities
            
            $
            193,512
            
            $
            190,475
            
            $
            233,880
            
            $
            229,025
            
            $
            296,028
            
            $
            295,226





During
      the first quarter of 2002, we formed a limited liability company to issue $86.3
      million of asset-backed notes in a securitization of substantially all of our
      residential loan portfolio, and we recorded a residual interest of $5.6 million,
      which represented the present value of future cash flows (spread and fees)
      that
      were anticipated to be received over the life of the loans. The residual
      interest is recorded on the consolidated balance sheets in the “Investment
      securities available-for-sale, at fair value”. The value of the residual
      interest is subject to substantial credit, prepayment, and interest rate risk
      on
      the sold residential loans. In accordance with the provisions of SFAS No. 115,
      “Accounting for Certain Investments in Debt and Equity Securities”, the residual
      interest is classified as “available-for-sale” and, as such, recorded at fair
      value with the resultant changes in fair value recorded as unrealized gain
      or
      loss in a separate component of shareholders’ equity in “accumulated other
      comprehensive income or loss”, until realized. Fair value is determined on a
      monthly basis based on a discounted cash flow analysis. These cash flows are
      projected over the lives of the receivables using prepayment, default, and
      interest rate assumptions that we believe market participants would use for
      similar financial instruments.





During
      2005, we recognized an other than temporary impairment of $250,000, in
      connection with the residual interest. Impairments that are deemed to be other
      than temporary are charged to non-interest income. In evaluating impairments
      as
      other than temporary we consider credit risk, as well as the magnitude and
      trend
      of default rates and prepayment speeds of the underlying residential loans.
      No
      other than temporary impairment was recognized during 2006.





-
          33
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 **Table
          of Contents**




At
      December 31, 2006 and 2005, key assumptions used to estimate the fair value
      of
      the residual interest based on projected cash flows, and the sensitivity of
      the
      value to immediate adverse changes in those assumptions were as
      follows:





**December
                31,****2006**
            
            **2005****(dollars
                in thousands)****Fair
                value of retained interest**
            
            **$**
            **2,039**
            
            **$**
            **3,570****Weighted
                average life (in years) - securities**
            
            
            **0.55**
            
            
            **0.56****Weighted
                average life (in years) - residual interest**
            
            
            **2.74**
            
            
            **2.92****Weighted
                average annual prepayment speed**
            
            
            **40.0**
            **%**
            
            **40.0**
            **%**Impact
                of 10% adverse change
            
            $
            (6
            )
            $
            (22
            )Impact
                of 25% adverse change
            
            $
            (10
            )
            $
            (34
            )**Weighted
                average annual discount rate**
            
            
            **13.0**
            **%**
            
            **13.0**
            **%**Impact
                of 10% adverse change
            
            $
            (65
            )
            $
            (117
            )Impact
                of 25% adverse change
            
            $
            (156
            )
            $
            (284
            )**Weighted
                average lifetime credit losses**
            
            
            **20.2**
            **%**
            
            **14.3**
            **%**Impact
                of 10% adverse change
            
            $
            (86
            )
            $
            (79
            )Impact
                of 25% adverse change
            
            $
            (224
            )
            $
            (211
            )





These
      sensitivities are hypothetical and should be used with caution. As the figures
      indicate, changes in the fair value of the residual are based on a variation
      in
      assumptions and generally cannot be extrapolated because the relationship of
      the
      change in assumption to the change in fair value may not be linear. Also, in
      the
      above table, the effect of a variation in a particular assumption on the fair
      value of the residual interest is calculated without changing any other
      assumption; in reality, changes in one factor may result in changes in another
      (for example, increases in market interest rates may result in lower prepayments
      but increased credit losses), which might magnify or counteract the
      sensitivities, and depending on the severity of such changes, the results of
      operations may be materially affected.





The
      following table indicates the composition of the investment security portfolio
      assuming these securities are held-to-maturity based on the final maturity
      of
      each investment as of December 31, 2006. Mortgage-backed securities and
      collateralized mortgage obligations are included in maturity categories based
      on
      their stated maturity date. Expected maturities may differ from contractual
      maturities because issuers may have the right to prepay obligations. Equity
      securities classified as available-for-sale have no maturity and are included
      in
      the due in one year or less column.





**Due
                in One**
              **Year
                or Less**
            
            **Due
                after One**
              **Year
                through**
              **Five
                Years**
            
            **Due
                after Five**
              **Years
                through**
              **Ten
                Years**
            
            **Due
                after**
              **Ten
                Years****Balance**
            
            **Weighted**
              **Average**
              **Yield**
            
            **Balance**
            
            **Weighted**
              **Average**
              **Yield**
            
            **Balance**
            
            **Weighted**
              **Average**
              **Yield**
            
            **Balance**
            
            **Weighted**
              **Average**
              **Yield****(dollars
                in thousands)**Investment
                securities available-for-sale
              U.S.
                agency securities
            
            $
            52,285
            
            
            3.84
            %
            $
            9,899
            
            
            4.58
            %
            $
            —
            
            
            —
            
            $
            —
            
            
            —Collateralized
                mortgage obligations
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            14,899
            
            
            5.57
            %
            
            20,228
            
            
            5.98
            %Equity
                securities
            
            
            177
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Residual
                interest in securitized loans
            
            
            —
            
            
            —
            
            
            2,039
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Total
                investment securities available-for-sale
            
            $
            52,462
            
            
            
            
            $
            11,938
            
            
            
            
            $
            14,899
            
            
            
            
            $
            20,228Investment
                securities held-to-maturity
              Mortgage-backed
                securities
            
            $
            —
            
            
            —
            
            $
            —
            
            
            —
            
            $
            —
            
            
            —
            
            $
            193,512
            
            
            4.25
            %





**Liquidity
      and Deposit Accounts**





Liquidity
      refers to our ability to maintain cash flow adequate to fund operations and
      meet
      obligations and other commitments on a timely basis, including the payment
      of
      maturing deposits and the origination or purchase of new loans. We maintain
      a
      cash and investment securities portfolio designed to satisfy operating and
      regulatory liquidity requirements while preserving capital and maximizing yield.
      As of December 31, 2006 and 2005, the Bank’s liquidity ratios (defined as the
      Bank’s current assets divided by its current liabilities) were 6.4% and 10.5%,
      respectively, exceeding the DFI regulatory requirement of 1.5%. In addition,
      the
      Bank’s liquidity position is supported by a credit facility with the FHLB of San
      Francisco. As of December 31, 2006, the Bank had remaining available borrowing
      capacity under this credit facility of $310.3 million, net of the $12.2 million
      of additional FHLB Stock that we would be required to purchase to support those
      additional borrowings, and $128.0 million of unused federal funds credit
      facilities under established lines of credit with four other banks.
      Additionally, we have a $25.0 million revolving credit facility with an
      unaffiliated bank that expires on April 30, 2007. We intend on renewing this
      revolving credit facility when it matures.





-
          34
          -
 **Table
          of Contents**




Total
      deposit accounts increased approximately $324.0 million to $2.1 billion at
      December 31, 2006 from $1.7 billion at December 31, 2005. The increase in
      deposits in 2006 was primarily related to an increase in time certificate of
      deposits of $304.4 million and an increase in money market and passbook accounts
      of $23.8 million, partially offset by a decrease in demand deposit accounts
      of
      $4.2 million. Brokered deposits totaled $332.8 million and $152.7 million at
      December 31, 2006 and 2005, respectively. Total deposit accounts increased
      approximately $303.4 million to $1.7 billion at December 31, 2005 from $1.4
      billion at December 31, 2004. In both 2006 and 2005, the funds provided from
      deposits were used primarily to fund the growth in our loan portfolio. Although
      we compete for deposits primarily on the basis of rates, based on our historical
      experience regarding retention of deposits, management believes that a
      significant portion of deposits will remain with us upon maturity on an ongoing
      basis.





The
      following table sets forth information regarding deposits outstanding at the
      dates indicated.





**December
                31,****2006**
            
            **2005**
            
            **2004****(in
                thousands)**Non-interest
                demand accounts
            
            $
            23,171
            
            $
            13,660
            
            $
            13,108Interest
                demand accounts
            
            
            24,523
            
            
            38,197
            
            
            72,832Money
                market and passbook accounts
            
            
            210,236
            
            
            186,453
            
            
            172,092Time
                certificates under $100,000
            
            
            784,732
            
            
            763,701
            
            
            703,493Time
                certificates $100,000 and over
            
            
            1,016,743
            
            
            733,417
            
            
            470,507$
            2,059,405
            
            $
            1,735,428
            
            $
            1,432,032





The
      following table sets forth the maturities of certificates of deposit $100,000
      and over at December 31, 2006 (in thousands):





Certificates
                of deposit $100,000 and over:Maturing
                within three months
            
            $
            373,451After
                three but within six months
            
            
            294,938After
                six but within twelve months
            
            
            226,063After
                twelve months
            
            
            122,291$
            1,016,743





**Off-Balance
      Sheet Arrangements**





In
      the
      normal course of operations, we engage in a variety of financial transactions
      that, in accordance with generally accepted accounting principles are not
      recorded in the financial statements. These transactions involve, to varying
      degrees, elements of credit, interest rate, and liquidity risk. Such
      transactions are used by us to meet the financing needs of our
      customers.





Our
      off-balance sheet arrangements, which principally include lending commitments,
      are described below. At December 31, 2006, we also had a residual interest
      of
      $2.0 million in a qualified special purpose entity formed in 2002 to issue
      $86.3
      million of asset-backed notes in a securitization of substantially all of our
      residential loan portfolio, and a $2.6 million equity interest in our
      deconsolidated trusts through which we have issued trust preferred securities.
      See Notes 8 and 10 of our consolidated financial statements included in Item
      8
      of this report.





*Lending
      Commitments.* Lending
      commitments include loan commitments and unused lines of credit. The instruments
      are not recorded in the consolidated balance sheet until funds are advanced
      under the commitments. We provide these lending commitments to customers in
      the
      normal course of business.





At
      December 31, 2006, our approved loan origination commitments outstanding totaled
      $256.7 million. Unfunded commercial lines of credit totaled $1.1 million. These
      lines of credit are commitments for possible future extension of credit to
      existing customers. These lines of credit are typically uncollateralized and
      usually do not contain a specified maturity date.





We
      apply
      essentially the same credit policies and standards as we do in the lending
      process when making these commitments. See Note 13 to the consolidated financial
      statements included in Item 8 of this report for additional information
      regarding lending commitments.








-
          35
          -
 **Table
          of Contents**





**Contractual
      Obligations**





The
      following table shows our contractual obligations by expected payment period,
      as
      of December 31, 2006. Further discussion of these commitments is included in
      Notes 6, 8, 9, and 14 to the consolidated financial statements included in
      Item
      8 of this report.





**Contractual
                Obligations**
            
            **Total**
            
            **Less
                Than**
              **One
                Year**
            
            **One**
              **Through**
              **Three
                Years**
            
            **Three**
              **Through**
              **Five
                Years**
            
            **More
                Than**
              **Five
                Years****(in
                thousands)**Long-term
                FHLB advances andother
                borrowings
            
            $
            832,502
            
            $
            257,267
            
            $
            248,248
            
            $
            282,917
            
            $
            44,070Junior
                subordinated debentures
            
            
            86,600
            
            
            —
            
            
            —
            
            
            —
            
            
            86,600Operating
                lease obligations
            
            
            13,042
            
            
            3,640
            
            
            5,382
            
            
            2,867
            
            
            1,153Deposits
                with stated maturity dates
            
            
            1,801,475
            
            
            1,636,998
            
            
            83,432
            
            
            81,045
            
            
            —Purchase
                obligations
            
            
            2,849
            
            
            1,000
            
            
            922
            
            
            927
            
            
            —$
            2,736,468
            
            $
            1,898,905
            
            $
            337,984
            
            $
            367,756
            
            $
            131,823





FHLB
      advances and other borrowings have defined terms and under certain circumstances
      are callable at the option of the lender. The junior subordinated debentures
      are
      callable by us under the circumstances and at the times described in Note 8
      to
      the consolidated financial statements included in Item 8 of this
      report.





Operating
      leases represent obligations entered into by us for office facilities. Certain
      of these noncancelable operating leases contain rental escalation clauses based
      on increases in the consumer price index. At the end of the lease obligations,
      renewal options may be exercised by us for up to an additional ten
      years.





Purchase
      obligations represent our contractual service and other operating and marketing
      obligations.





**Capital
      Resources**





ITLA
      Capital, the Bank’s holding company, had Tier 1 leverage, Tier 1 risk based and
      total risk-based capital ratios at December 31, 2006 of 9.0%, 10.2%, 11.9%,
      respectively, which, in the case of the Tier 1 risk-based and total risk-based
      capital ratios, represents $120.3 million and $53.5 million, respectively,
      of
      capital in excess of the amount required to be “well capitalized” for bank
      holding company regulatory purposes. These ratios were 9.1%, 11.0%, 13.0%,
      respectively, at December 31, 2005. Portions of our trust preferred securities
      presently qualify as Tier 1 and total risk-based capital. See Note 8 and Note
      15
      to our consolidated financial statements included in Item 8 of this report.





The
      Bank
      had Tier 1 leverage, Tier 1 risk based and total risk-based capital ratios
      at
      December 31, 2006 of 9.1%, 10.3% and  11.5%,
      respectively, which represents $130.0 million, $120.3 million and $42.6 million,
      respectively, of capital in excess of the amount required for the Bank to be
      “well capitalized” for regulatory purposes. These ratios were 9.1%, 11.0% and
      12.2%, respectively, as of December 31, 2005.





Shareholders’
      equity increased to $221.3 million at December 31, 2006 from $204.5 million
      at
      December 31, 2005. The change was primarily due to the increase in retained
      earnings as a result of $26.9 million of net income earned during the year
      and a
      $3.7  million
      increase in contributed capital, which was primarily related to the exercise
      of
      employee stock options, partially offset by the purchase of $11.3 million of
      our
      common stock currently held as treasury stock and cash dividends of $3.2
      million.








-
          36
          -
 **Table
          of Contents**





**Credit
      Risk Elements**





**Allowance
      for Loan Losses and Nonperforming Assets**





The
      following table provides certain information with respect to our total allowance
      for loan losses, including charge-offs, recoveries and selected ratios, for
      the
      periods indicated.





**As
                of and for the Years Ended December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****(dollars
                in thousands)**Balance
                at beginning of year
            
            $
            43,817
            
            $
            35,483
            
            $
            33,401
            
            $
            33,009
            
            $
            26,650Provision
                for loan losses
            
            
            5,000
            
            
            10,250
            
            
            4,725
            
            
            7,760
            
            
            9,030Additions
                due to acquisitions
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            2,048Charge-offs:Real
                estate loans
            
            
            (1,634
            )
            
            (1,584
            )
            
            (189
            )
            
            (5,286
            )
            
            (4,730
            )Entertainment
                finance loans
            
            
            (2,500
            )
            
            (395
            )
            
            (2,180
            )
            
            (800
            )
            
            —Franchise
                loans
            
            
            —
            
            
            (451
            )
            
            —
            
            
            (661
            )
            
            —Commercial
                and other loans
            
            
            —
            
            
            —
            
            
            (1,121
            )
            
            (700
            )
            
            —Total
                charge-offs
            
            
            (4,134
            )
            
            (2,430
            )
            
            (3,490
            )
            
            (7,447
            )
            
            (4,730
            )Recoveries:Real
                estate loans
            
            
            894
            
            
            88
            
            
            89
            
            
            14
            
            
            11Entertainment
                finance loans
            
            
            472
            
            
            426
            
            
            —
            
            
            —
            
            
            —Commercial
                and other loans
            
            
            —
            
            
            —
            
            
            758
            
            
            65
            
            
            —Total
                recoveries
            
            
            1,366
            
            
            514
            
            
            847
            
            
            79
            
            
            11Net
                charge-offs
            
            
            (2,768
            )
            
            (1,916
            )
            
            (2,643
            )
            
            (7,368
            )
            
            (4,719
            )Balance
                at end of the year
            
            $
            46,049
            
            $
            43,817
            
            $
            35,483
            
            $
            33,401
            
            $
            33,009Average
                loans outstanding during the year
            
            $
            2,668,254
            
            $
            2,239,261
            
            $
            1,606,125
            
            $
            1,415,812
            
            $
            1,305,902Loans,
                net, at end of the year*(1)*
            
            $
            3,019,417
            
            $
            2,567,297
            
            $
            1,829,298
            
            $
            1,538,825
            
            $
            1,471,243Selected
                Ratios:Net
                charge-offs to average loans outstanding
            
            
            0.10
            %
            
            0.09
            %
            
            0.16
            %
            
            0.52
            %
            
            0.36
            %Net
                charge-offs to loans, net*(1)*
            
            
            0.09
            %
            
            0.07
            %
            
            0.14
            %
            
            0.48
            %
            
            0.32
            %Allowance
                for loan losses to loans, net*(1)*
            
            
            1.53
            %
            
            1.71
            %
            
            1.94
            %
            
            2.14
            %
            
            2.31
            %Allowance
                for loan losses to nonaccrual loans
            
            
            175.40
            %
            
            180.59
            %
            
            242.17
            %
            
            392.26
            %
            
            555.61
            %


____________





*(1)*  *Loans,
      before allowance for loan losses and net of premium, deferred loan origination
      costs and deferred loan fees.*





The
      allowance for loan losses increased to $46.0 million or 1.53% of our total
      loan
      portfolio at December 31, 2006 from $43.8 million or 1.71% of our total loan
      portfolio at December 31, 2005. The increase in the allowance was due primarily
      to the provision for loan losses of $5.0 million, less net charge-offs of $2.8
      million. The current period provision for loan losses was recorded to provide
      reserves adequate to support the known and inherent risk of loss in the loan
      portfolio, and for specific reserves required as of December 31, 2006. The
      decrease in the percentage of the allowance for loan losses to loans, net,
      primarily reflects the significant growth in our total loan portfolio during
      the
      year, which increased by 17.6% compared to the prior year, as well as the
      continuing decline in our overall risk profile due to a broader geographic
      diversification of our real estate loan portfolio. As of December 31, 2006,
      over
      46% of our real estate loans were secured by properties located outside of
      the
      state of California compared to 41% in 2005. In addition, the overall level
      of
      our other loans of concern and non-performing loans remained relatively stable
      during 2006 as compared to 2005.





The
      allowance for loan losses increased to $43.8 million or 1.71% of our total
      loan
      portfolio at December 31, 2005 from $35.5 million or 1.94% of our total loan
      portfolio at December 31, 2004. The increase in the allowance was due primarily
      to the provision for loan losses of $10.3 million, less net charge-offs of
      $1.9
      million. The 2005 provision for loan losses was recorded to provide reserves
      adequate to support the known and inherent risk of loss in the loan portfolio,
      and for specific reserves required as of December 31, 2005. The increase in
      the
      provision for loan losses in 2005 as compared to 2004 was primarily caused
      by
      the growth in our loan portfolio and the increase in non-performing and other
      loans of concern during the year. During 2005, our loan portfolio increased
      $738.0 million, non-performing loans increased $9.6 million, and other loans
      of
      concern increased $29.3 million. Other loans of concern consist of performing
      loans which have known information that have caused management to be concerned
      about the borrowers ability to comply with present loan repayment terms. The
      decrease in the percentage of the allowance for loan losses to loans, net,
      primarily reflects the decline in our overall risk profile due to a broader
      geographic diversification of our real estate loan portfolio.








-
          37
          -
 **Table
          of Contents**





The
      following table sets forth management’s historical allocation of the allowance
      for loan losses by loan or contract category and the percentage of gross loans
      in each category to total gross loans at the dates indicated.





**December
                31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****Loan
                Category:**
            
            **Allowance****for
                loan****losses**
            
            **%
                of loans****(1)**
            
            **Allowance**
              **for
                loan**
              **losses**
            
            **%
                of loans****(1)**
            
            **Allowance**
              **for
                loan**
              **losses**
            
            **%
                of loans****(1)**
            
            **Allowance**
              **for
                loan**
              **losses**
            
            **%
                of loans****(1)**
            
            **Allowance**
              **for
                loan**
              **losses**
            
            **%
                of loans****(1)****(dollars
                in thousands)**Secured
                by real estate
            
            $
            38,284
            
            
            96
            %
            $
            34,222
            
            
            96
            %
            $
            23,543
            
            
            86
            %
            $
            25,522
            
            
            87
            %
            $
            28,348
            
            
            88
            %Entertainment
                finance
            
            
            5,616
            
            
            3
            %
            
            6,770
            
            
            3
            %
            
            7,828
            
            
            5
            %
            
            4,354
            
            
            6
            %
            
            2,961
            
            
            8
            %Franchise
            
            
            1,833
            
            
            —
            
            
            2,685
            
            
            1
            %
            
            4,032
            
            
            8
            %
            
            3,185
            
            
            7
            %
            
            1,490
            
            
            4
            %Commercial
                and other
            
            
            316
            
            
            1
            %
            
            140
            
            
            —
            
            
            80
            
            
            1
            %
            
            340
            
            
            —
            
            
            210
            
            
            —Total
            
            $
            46,049
            
            
            100
            %
            $
            43,817
            
            
            100
            %
            $
            35,483
            
            
            100
            %
            $
            33,401
            
            
            100
            %
            $
            33,009
            
            
            100
            %


____________





*(1)*  *Percentage
      represents gross loans in category to total gross loans.*





Management
      believes the allowance for loan losses accounting policy is critical to the
      portrayal and understanding of our financial condition and results of
      operations. As such, selection and application of this “critical accounting
      policy” involves judgments, estimates, and uncertainties that are susceptible to
      change. In the event that different assumptions or conditions were to prevail,
      and depending upon the severity of such changes, the possibility of materially
      different financial condition or results of operations is a reasonable
      likelihood.





Management
      periodically assesses the adequacy of the allowance for loan losses by reference
      to many quantitative and qualitative factors that may be weighted differently
      at
      various times depending on prevailing conditions. These factors include, among
      other elements:





•
            the
                risk characteristics of various classifications of loans;





•
            general
                portfolio trends relative to asset and portfolio size;





•
            asset
                categories;





•
            potential
                credit and geographic concentrations;





•
            delinquency
                trends and nonaccrual loan levels;





•
            historical
                loss experience and risks associated with changes in economic, social
                and
                business conditions; and





•
            the
                underwriting standards in effect when the loan was made.





Accordingly,
      the calculation of the adequacy of the allowance for loan losses is not based
      solely on the level of nonperforming assets. The quantitative factors, included
      above, are utilized by our management to identify two different risk groups
      (1)
      individual loans (loans with specifically identifiable risks); and (2)
      homogeneous loans (groups of loan with similar characteristics). We base the
      allocation for individual loans primarily on risk rating grades assigned to
      each
      of these loans as a result of our loan management and review processes. We
      then
      assign each risk-rating grade a loss ratio, which is determined based on the
      experience of management and our independent loan review process. We estimate
      losses on impaired loans based on estimated cash flows discounted at the loan’s
      original effective interest rate or based on the underlying collateral value.
      Based on management’s experience, we also assign loss ratios to groups of loans.
      These loss ratios are assigned to the various homogenous categories of the
      portfolio.





The
      qualitative factors, included above, are generally utilized to identify other
      risks inherent in the portfolio and to determine whether the estimated credit
      losses associated with the current portfolio might differ from historical loss
      trends. We estimate a range of exposure for each qualitative factor and evaluate
      the current condition and trend of each factor. Based on this evaluation, we
      assign a positive, negative or neutral grade to each factor to determine whether
      the portion of the qualitative reserve is in the high, middle or low end of
      the
      range for each factor. Because of the subjective nature of these factors and
      the
      judgments required to determine the estimated ranges, the actual losses incurred
      can vary significantly from the estimated amounts.





Management
      believes that our allowance for loan losses as of December 31, 2006 was adequate
      to absorb the known and inherent risks of loss in the loan portfolio at that
      date. While management believes the estimates and assumptions used in its
      determination of the adequacy of the allowance are reasonable, there can be
      no
      assurance that such estimates and assumptions will not be proven incorrect
      in
      the future, or that the actual amount of future provisions will not exceed
      the
      amount of past provisions or that any increased provisions that may be required
      will not adversely impact our financial condition and results of operations.
      In
      addition, the determination of the amount of the Bank’s allowance for loan
      losses is subject to review by bank regulators, as part of the routine
      examination process, which may result in the establishment of additional
      reserves based upon their judgment of information available to them at the
      time
      of their examination.





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          of Contents**




The
      following table sets forth the delinquency status of our loan portfolios at
      each
      of the dates indicated.





**December
                31,****2006**
            
            **2005**
            
            **2004****Amount**
            
            **Percent
                of**
              **Gross**
              **Portfolio**
            
            **Amount**
            
            **Percent
                of**
              **Gross**
              **Portfolio**
            
            **Amount**
            
            **Percent
                of**
              **Gross**
              **Portfolio****(dollars
                in thousands)****Period
                of Delinquency**
              30
                - 59 days
            
            $
            10,120
            
            
            0.34
            %
            $
            5,060
            
            
            0.20
            %
            $
            16,684
            
            
            0.92
            %60
                - 89 days
            
            
            15,170
            
            
            0.51
            %
            
            3,678
            
            
            0.14
            %
            
            6,018
            
            
            0.33
            %90
                days or more
            
            
            23,937
            
            
            0.80
            %
            
            22,533
            
            
            0.89
            %
            
            9,401
            
            
            0.52
            %Total
                loans delinquent
            
            $
            49,227
            
            
            1.65
            %
            $
            31,271
            
            
            1.23
            %
            $
            32,103
            
            
            1.77
            %





The
      increase in total delinquent loans in 2006 was due primarily to an increase
      of
      $26.7 million of past due real estate loans, partially offset by a $6.6 million
      decrease in past due entertainment finance loans and a $2.2 million decrease
      in
      past due franchise loans.





We
      have
      established a policy that all loans greater than $2.5 million are reviewed
      annually. This review usually involves obtaining updated information about
      the
      collateral and source of repayment. In addition, independent outside consultants
      periodically review our loan portfolio and report findings to management and
      the
      audit committee of the Board of Directors. Loans considered to warrant special
      attention are presented to the review and reserve committee, which meets at
      least monthly to review the status of classified loans, consider new
      classifications or declassifications, determine the need for and amount of
      any
      charge offs, and recommend to our executive committee of the Board of Directors
      the level of allowance for loan losses to be maintained. If management believes
      that the collection of the full amount of principal is unlikely and the value
      of
      the collateral securing the obligation is insufficient, the difference between
      the loan balance and the fair market value of the collateral are recognized
      by a
      partial charge-off of the loan balance to the collateral’s fair value. While
      real property collateral is held for sale, it is subject to periodic evaluation
      and/or appraisal. If an evaluation or appraisal indicates that the property
      will
      ultimately sell for less than our recorded value plus costs of disposition,
      the
      loss is recognized by a charge to allowance for other real estate owned
      losses.





Loans
      are
      placed on nonaccrual status when they become 90 days or more contractually
      delinquent, or earlier if the collection of interest is considered by management
      to be doubtful, unless the loan is considered well secured and in the process
      of
      collection. Subsequent cash collections on nonaccrual loans are either
      recognized as interest income on a cash basis, if the loan is well secured
      and
      in management’s judgment the net book value is fully collectible, or recorded
      entirely as a reduction of principal.





The
      following table sets forth our nonperforming assets by category and troubled
      debt restructurings as of the dates indicated:





**December
                31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****(dollars
                in thousands)**Nonaccrual
                loans:*(1*)Real
                estate
            
            $
            14,091
            
            $
            6,117
            
            $
            7,057
            
            $
            4,686
            
            $
            3,913Franchise
            
            
            4,549
            
            
            7,366
            
            
            3,874
            
            
            799
            
            
            1,986Entertainment
                finance
            
            
            7,614
            
            
            10,780
            
            
            3,721
            
            
            3,030
            
            
            —Total
                nonaccrual loans
            
            
            26,254
            
            
            24,263
            
            
            14,652
            
            
            8,515
            
            
            5,899Other
                real estate owned, net
            
            
            6,729
            
            
            3,960
            
            
            —
            
            
            7,048
            
            
            12,593Total
                nonperforming assets
            
            
            32,983
            
            
            28,223
            
            
            14,652
            
            
            15,563
            
            
            18,492Accruing
                loans past-due 90 days or more with respect to principal or
                interest
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Performing
                troubled debt restructurings
            
            
            7,994
            
            
            10,758
            
            
            3,096
            
            
            4,709
            
            
            7,858$
            40,977
            
            $
            38,981
            
            $
            17,748
            
            $
            20,272
            
            $
            26,350Nonaccrual
                loans to total gross loans
            
            
            0.88
            %
            
            0.95
            %
            
            0.80
            %
            
            0.55
            %
            
            0.40
            %Allowance
                for loan losses to nonaccrual loans
            
            
            175.40
            %
            
            180.59
            %
            
            242.17
            %
            
            392.26
            %
            
            555.61
            %Nonperforming
                assets to total assets
            
            
            0.97
            %
            
            0.92
            %
            
            0.63
            %
            
            0.86
            %
            
            1.08
            %








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          of Contents**





________________





*(1)
      Includes five loans with a net book balance of $5.4 million that were
      nonperforming troubled debt restructurings in 2006, six loans with a net book
      balance of $8.5 million that were nonperforming troubled debt restructurings
      in
      2005, four loans with a net book balance of $5.7 million that were nonperforming
      troubled debt restructurings in 2004, and three loans with a net book balance
      of
      $3.8 million that were nonperforming troubled debt restructurings in 2003.
      There
      were no nonperforming troubled debt restructurings in 2002.*





Gross
      interest income that would have been recorded on nonaccrual loans had they
      been
      current in accordance with original terms was $1.5 million and $1.6 million
      for
      the years ended December 31, 2006 and 2005, respectively. The amount of interest
      income on such nonaccrual loans included in net income for the years ended
      December 31, 2006 and 2005 was none and $340,000, respectively. For the years
      ended December 31, 2006 and 2005, $1.5 million and $1.9 million, respectively,
      of gross interest income would have been recorded had the restructured loans
      been current in accordance with their original terms compared to $720,000 and
      $1.4 million, respectively, of interest income that was included in net income
      for the same periods.





In
      2006,
      $3.5 million of new other real estate owned was acquired, and $730,000 of other
      real estate owned was sold, resulting in $6.7 million of other real estate
      owned
      at December 31, 2006.





As
      of
      December 31, 2006 and 2005, we had loans with an aggregate outstanding balance
      of $67.0 million and $66.4 million, respectively, with respect to which known
      information concerning possible credit problems with the borrowers or the cash
      flows of the properties securing the respective loans has caused management
      to
      be concerned about the ability of the borrowers to comply with present loan
      repayment terms, which may result in the future inclusion of such loans in
      the
      non-accrual loan category.





**Item
      7A.Quantitative and Qualitative Disclosures About Market
      Risk**





We
      realize income principally from the differential or spread between the interest
      earned on loans, investments and other interest-earning assets and the interest
      paid on deposits and borrowings. Loan volumes and yields, as well as the volume
      of and rates on investments, deposits and borrowings, are affected by market
      interest rates. Additionally, because of the terms and conditions of many of
      our
      loan agreements and deposit accounts, a change in interest rates could also
      affect the duration of the loan portfolio and/or the deposit base, which could
      alter our sensitivity to future changes in interest rates.





Interest
      rate risk management focuses on maintaining consistent growth in net interest
      income within board-approved policy limits while taking into consideration,
      among other factors, our overall credit, operating income, operating cost and
      capital profile. The asset/liability management committee, which includes senior
      management representatives and reports to the Board of Directors, monitors
      and
      manages interest rate risk to maintain an acceptable level of change in net
      interest income as a result of changes in interest rates. See “Item 1. Business
      - Nonperforming Assets and Other Loans of Concern”.





In
      evaluating our exposure to changes in interest rates, certain risks inherent
      in
      the method of analysis presented in the following tables must be considered.
      For
      example, although certain assets and liabilities may have similar maturities
      or
      periods to repricing, they may react in different degrees and at different
      times
      to changes in market rates. Additionally, loan prepayments and early withdrawals
      of time certificates could cause interest sensitivities to vary from those
      that
      appear in the following table. Further, certain assets, such as adjustable
      rate
      real estate loans, have features that restrict changes in interest rates on
      a
      short-term basis and over the life of the asset. The majority of our adjustable
      rate real estate loans may not adjust downward below their initial rate, with
      increases generally limited to maximum adjustments of 2% per year and up to
      5%
      over the life of the loan. These loans may also be subject to prepayment
      penalties. At December 31, 2006, 3.2% of our adjustable rate loan portfolio
      could not adjust downward below the floor rate and the weighted-average minimum
      interest rate for these loans was 8.56%. At December 31, 2006, 52.0% of the
      total loans outstanding had a lifetime interest rate cap, with a
      weighted-average lifetime interest rate cap of 11.60%. The anticipated effects
      of these various factors are considered by management in implementing interest
      rate risk management activities.





We
      use an
      internal earnings simulation model as a tool to identify and manage our interest
      rate risk profile. The model is based on projected cash flows and repricing
      characteristics for all financial instruments and incorporates market-based
      assumptions regarding the impact of changing interest rates on current volumes
      of applicable financial instruments, considering applicable interest rate floors
      and caps and prepayment penalties associated with each financial instrument.
      These assumptions are inherently uncertain and, as a result, the model cannot
      precisely measure net interest income or precisely predict the impact of changes
      in interest rates on net interest income. Actual results will differ from
      simulated results due to timing, magnitude and frequency of interest rate
      changes as well as changes in market conditions and management
      strategies.








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          of Contents**





The
      following table shows our estimated earnings sensitivity profile to immediate,
      parallel shifts in interest rates as of December 31, 2006:





**Changes
                in**
              **Interest
                rates**
              **(Basis
                Points)**
            
            **Percentage
                Change in**
              **Net
                Interest Income**
              **(12
                Months)**+
                200 Over One Year
            
            
            0.61%+
                100 Over One Year
            
            
            1.53%-
                100 Over One Year
            
            
            -1.62%-
                200 Over One Year
            
            
            -2.03%





Another
      tool used to identify and manage our interest rate risk profile is the static
      gap analysis. Interest sensitivity gap analysis measures the difference between
      the assets and liabilities repricing or maturing within specific time periods.
      The following table presents an estimate of our static GAP analysis as of
      December 31, 2006.





**Maturing
                or Repricing in****3
                Months**
              **or
                less**
            
            **After
                3**
              **Months
                But**
              **Within
                1 Year**
            
            **After
                1 Year**
              **But
                Within**
              **5
                Years**
            
            **After**
              **5
                Years**
            
            **Non-Interest**
              **Sensitive**
            
            **Total****(dollars
                in thousands)****Assets**Loans*(1)*
            
            $
            1,184,139
            
            $
            777,643
            
            $
            1,028,047
            
            $
            29,588
            
            $
            —
            
            $
            3,019,417Cash
                and cash equivalents
            
            
            28,964
            
            
            —
            
            
            —
            
            
            —
            
            
            1,484
            
            
            30,448Investment
                securities available-for-sale
            
            
            13,152
            
            
            48,366
            
            
            32,681
            
            
            5,151
            
            
            177
            
            
            99,527Investment
                securities held-to-maturity
            
            
            7,243
            
            
            29,125
            
            
            130,782
            
            
            26,362
            
            
            —
            
            
            193,512Non-interest
                earning assets less allowance for loan losses
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            72,606
            
            
            72,606Total
                assets
            
            $
            1,233,498
            
            $
            855,134
            
            $
            1,191,510
            
            $
            61,101
            
            $
            74,267
            
            $
            3,415,510**Liabilities
                and Shareholders’ Equity**Time
                certificates under $100,000
            
            $
            251,006
            
            $
            491,506
            
            $
            42,220
            
            $
            —
            
            $
            —
            
            $
            784,732Time
                certificates $100,000 and more
            
            
            373,451
            
            
            521,001
            
            
            122,291
            
            
            —
            
            
            —
            
            
            1,016,743Money
                market and passbook accounts
            
            
            210,236
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            210,236Demand
                deposit accounts
            
            
            24,523
            
            
            —
            
            
            —
            
            
            —
            
            
            23,171
            
            
            47,694FHLB
                advances and other borrowings
            
            
            215,497
            
            
            219,268
            
            
            531,165
            
            
            44,070
            
            
            —
            
            
            1,010,000Other
                liabilities
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            38,168
            
            
            38,168Junior
                subordinated debentures
            
            
            25,800
            
            
            30,900
            
            
            —
            
            
            29,900
            
            
            
            
            
            86,600Shareholders’
                equity
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            221,337
            
            
            221,337Total
                liabilities and shareholders’ equity
            
            $
            1,100,513
            
            $
            1,262,675
            
            $
            695,676
            
            $
            73,970
            
            $
            282,676
            
            $
            3,415,510Net
                repricing assets over (under) repricing liabilities equals interest
                rate
                sensitivity GAP
            
            $
            132,985
            
            $
            (407,541
            )
            $
            495,834
            
            $
            (12,869
            )
            $
            (208,409
            )Cumulative
                interest rate sensitivity GAP
            
            $
            132,985
            
            $
            (274,556
            )
            $
            221,278
            
            $
            208,409
            
            $
            —Cumulative
                GAP as a percentage of total assets
            
            
            3.89
            %
            
            -8.04
            %
            
            6.48
            %
            
            6.10
            %
            
            0.00
            %


____________





*(1)*  *Approximately
      51.3% of our loan portfolio was comprised of adjustable rate loans at December
      31, 2006, and approximately 45.5% of the loan portfolio was comprised of hybrid
      loans, which become adjustable rate loans after an initial fixed rate period
      of
      three or five years. Our adjustable rate loans generally re-price on a quarterly
      or semi-annual basis with increases generally limited to maximum adjustments
      of
      2% per year up to 5% for the life of the loan. Nonaccrual loans of approximately
      $26.3 million are assumed to reprice after five years.*





Certain
      shortcomings are inherent in a gap analysis. For example, although certain
      assets and liabilities may have similar maturities or periods of repricing,
      they
      may react in different degrees to changes in market rates. Also, the interest
      rates on certain types of assets and liabilities may fluctuate in advance of
      changes in market rates, while interest rates on other types may lag behind
      changes in market rates. Additionally, certain assets, such as adjustable rate
      loans, have features that restrict changes in interest rates on a short-term
      basis and over the life of the asset. Further, in the event of a change in
      interest rates, prepayment and early withdrawal levels would likely deviate
      significantly from those assumed in calculating the table. Finally, the ability
      of some borrowers to service their debt may decrease in the event of a severe
      interest rate increase.





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          41
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          of Contents**





**Item
      8.Financial Statements and Supplementary
      Data**





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Page**Management’s
                Report on Internal Control Over Financial
                Reporting
            43Reports
                of Independent Registered Public Accounting
                Firm
            44Consolidated
                Balance Sheets as of December 31, 2006 and
                2005
            46Consolidated
                Statements of Income for the Years Ended
                December 31, 2006, 2005 and 2004
            47Consolidated
                Statements of Changes in Shareholders’
                Equity and Comprehensive Income for the Years Ended December 31,
                2006,
                2005 and 2004
            48Consolidated
                Statements of Cash Flows for the Years
                Ended December 31, 2006, 2005 and 2004
            49Notes
                to Consolidated Financial
                Statements
            50








-
          42
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          of Contents**





**MANAGEMENT'SREPORT ON INTERNALCONTROL OVER FINANCIAL
      REPORTING**











Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting, as such term is defined in Exchange Act Rules
      13a-15(f) and 15d-15(f). The Company’s internal control over financial reporting
      is a process designed to provide reasonable assurance regarding the reliability
      of financial reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles.  Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Therefore, even those systems determined to
      be
      effective can provide only reasonable assurance with respect to financial
      statement preparation and presentation. Also, projections of any evaluation
      of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





Under
      the
      supervision and with the participation of our management, including our Chief
      Executive Officer and Chief Financial Officer, we conducted an evaluation of
      the
      effectiveness of our internal control over financial reporting as of December
      31, 2006 based on the framework in Internal Control--Integrated Framework issued
      by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
      Based on that evaluation, our management concluded that our internal control
      over financial reporting was effective as of December 31, 2006.





Management's
      assessment of the effectiveness of our internal control over financial reporting
      as of December 31, 2006 has been audited by Ernst & Young LLP, an
      independent registered public accounting firm, as stated in their report which
      is included elsewhere herein.














/s/
      George W. Haligowski


George
      W.
      Haligowski


Chairman
      of the Board, President and


Chief
      Executive Officer








/s/
      Timothy M. Doyle


Timothy
      M. Doyle


Executive
      Managing Director and


Chief
      Financial Officer








-
          43
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          of Contents**





**REPORT
      OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING
      FIRM**











To
      the
      Board of Directors and Shareholders of ITLA Capital Corporation:





We
      have
      audited management’s assessment, included in the accompanying Management’s
      Report on Internal Control Over Financial Reporting, that ITLA Capital
      Corporation and subsidiaries (the “Company”) maintained effective internal
      control over financial reporting as of December 31, 2006, based on criteria
      established in Internal Control—Integrated Framework issued by the Committee of
      Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). ITLA
      Capital Corporation’s management is responsible for maintaining effective
      internal control over financial reporting and for its assessment of the
      effectiveness of internal control over financial reporting. Our responsibility
      is to express an opinion on management’s assessment and an opinion on the
      effectiveness of the Company’s internal control over financial reporting based
      on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audit included obtaining an understanding of internal control
      over
      financial reporting, evaluating management’s assessment, testing and evaluating
      the design and operating effectiveness of internal control, and performing
      such
      other procedures as we considered necessary in the circumstances. We believe
      that our audit provides a reasonable basis for our opinion.





A
      company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. A company’s internal control over
      financial reporting includes those policies and procedures that (1) pertain
      to
      the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company; (2)
      provide reasonable assurance that transactions are recorded as necessary to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use, or disposition of the company’s
      assets that could have a material effect on the financial
      statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





In
      our
      opinion, management’s assessment that ITLA Capital Corporation maintained
      effective internal control over financial reporting as of December 31, 2006,
      is
      fairly stated, in all material respects, based on the COSO criteria. Also,
      in
      our opinion, ITLA Capital Corporation maintained, in all material respects,
      effective internal control over financial reporting as of December 31, 2006,
      based on **** the
      COSO
      criteria **.**





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheets of ITLA Capital
      Corporation and subsidiaries as of December 31, 2006 and 2005, and the related
      consolidated statements of income, changes in shareholders’ equity and
      comprehensive income, and cash flows for each of the three years in the period
      ended December 31, 2006 and our report dated March 14, 2007 expressed an
      unqualified opinion thereon.








/s/
      Ernst
& Young LLP





Los
      Angeles, California


March
      14,
      2007











-
          44
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          of Contents**





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**








To
      the
      Board of Directors and the Shareholders of ITLA Capital
      Corporation:





We
      have
      audited the accompanying consolidated balance sheets of ITLA Capital Corporation
      and subsidiaries (the “Company”), a Delaware corporation, as of
      December 31, 2006 and 2005, and the related consolidated statements of
      income, changes in shareholders’ equity and comprehensive income, and cash flows
      for each of the three years in the period ended December 31, 2006. These
      financial statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the consolidated financial position of ITLA Capital
      Corporation and subsidiaries at December 31, 2006 and 2005, and the
      consolidated results of their operations and their cash flows for each of the
      three years in the period ended December 31, 2006, in conformity with U.S.
      generally accepted accounting principles.





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the effectiveness of ITLA Capital Corporation
      and subsidiaries’ internal control over financial reporting as of December 31,
      2006, based on criteria established in Internal Control-Integrated Framework
      issued by the Committee of Sponsoring Organizations of the Treadway Commission
      and our report dated March 14, 2007 expressed an unqualified opinion
      thereon.








/s/
      Ernst
& Young LLP





Los
      Angeles, California


March
      14,
      2007














-
          45
          -
 **Table
          of Contents**





**ITLA
      CAPITAL CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**





**December
                31,****2006**
            
            **2005****(in
                thousands, except **share
                amounts)******Assets**
              Cash
                and cash equivalents
            
            $
            30,448
            
            $
            93,747Investment
                securities available-for-sale, at fair value
            
            
            99,527
            
            
            92,563Investment
                securities held-to-maturity, at amortized cost (fair value approximates
                $190,475 and $229,025 in 2006 and 2005, respectively)
            
            
            193,512
            
            
            233,880Stock
                in Federal Home Loan Bank
            
            
            48,984
            
            
            43,802Loans,
                net (net of allowance for loan losses of $46,049 and $43,817 in 2006
                and
                2005, respectively)
            
            
            2,973,368
            
            
            2,523,480Interest
                receivable
            
            
            20,753
            
            
            16,287Other
                real estate owned, net
            
            
            6,729
            
            
            3,960Premises
                and equipment, net
            
            
            7,851
            
            
            6,718Deferred
                income taxes
            
            
            11,513
            
            
            12,717Goodwill
            
            
            3,118
            
            
            3,118Other
                assets
            
            
            19,707
            
            
            20,924Total
                assets
            
            $
            3,415,510
            
            $
            3,051,196**Liabilities
                and Shareholders’ Equity**Liabilities:Deposit
                accounts
            
            $
            2,059,405
            
            $
            1,735,428Federal
                Home Loan Bank advances and other borrowings
            
            
            1,010,000
            
            
            992,557Accounts
                payable and other liabilities
            
            
            38,168
            
            
            32,130Junior
                subordinated debentures
            
            
            86,600
            
            
            86,600Total
                liabilities
            
            
            3,194,173
            
            
            2,846,715Commitments
                and contingencies (Note 14)Shareholders’
                equity:Preferred
                stock, 5,000,000 shares authorized, none issued
            
            
            —
            
            
            —Contributed
                capital - common stock, $.01 par value; 20,000,000 shares authorized,
                9,065,672 and 8,978,998 issued in 2006 and 2005,
                respectively
            
            
            82,073
            
            
            78,004Retained
                earnings
            
            
            243,823
            
            
            220,095Accumulated
                other comprehensive income (loss), net
            
            
            35
            
            
            (364
            )325,931
            
            
            297,735Less
                treasury stock, at cost - 3,803,969 and 3,576,695 shares in 2006
                and 2005,
                respectively
            
            
            (104,594
            )
            
            (93,254
            )Total
                shareholders’ equity
            
            
            221,337
            
            
            204,481Total
                liabilities and shareholders’ equity
            
            $
            3,415,510
            
            $
            3,051,196





See
      accompanying notes to the consolidated financial statements.





-
          46
          -
 **Table
          of Contents**








**ITLA
      CAPITAL CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF INCOME**





**Years
                Ended December 31,****2006**
            
            **2005**
            
            **2004****(in
                thousands, except per **share
                amounts)****Interest
                income:Loans
                receivable, including fees
            
            $
            207,320
            
            $
            159,720
            
            $
            115,663Cash,
                cash equivalents and investment securities
            
            
            19,181
            
            
            18,438
            
            
            9,291Total
                interest income
            
            
            226,501
            
            
            178,158
            
            
            124,954Interest
                expense:Deposit
                accounts
            
            
            85,156
            
            
            53,807
            
            
            27,916Federal
                Home Loan Bank advances and other borrowings
            
            
            38,722
            
            
            25,508
            
            
            7,343Junior
                subordinated debentures
            
            
            8,197
            
            
            7,171
            
            
            6,159Total
                interest expense
            
            
            132,075
            
            
            86,486
            
            
            41,418Net
                interest income before provision for loan losses
            
            
            94,426
            
            
            91,672
            
            
            83,536Provision
                for loan losses
            
            
            5,000
            
            
            10,250
            
            
            4,725Net
                interest income after provision for loan losses
            
            
            89,426
            
            
            81,422
            
            
            78,811Non-interest
                income:Gain
                on sale of loans, net
            
            
            —
            
            
            4,911
            
            
            9,284Late
                and collection fees
            
            
            970
            
            
            536
            
            
            338Other
            
            
            1,802
            
            
            1,127
            
            
            4,886Total
                non-interest income
            
            
            2,772
            
            
            6,574
            
            
            14,508Non-interest
                expense:Compensation
                and benefits
            
            
            21,265
            
            
            21,737
            
            
            21,444Occupancy
                and equipment
            
            
            7,439
            
            
            7,177
            
            
            5,924Other
            
            
            17,743
            
            
            17,344
            
            
            14,666Total
                general and administrative
            
            
            46,447
            
            
            46,258
            
            
            42,034Real
                estate owned expense, net
            
            
            334
            
            
            204
            
            
            127Provision
                for losses on other real estate owned
            
            
            —
            
            
            —
            
            
            1,000Loss
                (gain) on sale of other real estate owned
            
            
            35
            
            
            (11
            )
            
            (415
            )Total
                real estate owned expense
            
            
            369
            
            
            193
            
            
            712Total
                non-interest expense
            
            
            46,816
            
            
            46,451
            
            
            42,746Income
                before provision for income taxes
            
            
            45,382
            
            
            41,545
            
            
            50,573Provision
                for income taxes
            
            
            18,493
            
            
            17,482
            
            
            19,948NET
                INCOME
            
            $
            26,889
            
            $
            24,063
            
            $
            30,625BASIC
                EARNINGS PER SHARE
            
            $
            4.83
            
            $
            4.19
            
            $
            5.04DILUTED
                EARNINGS PER SHARE
            
            $
            4.71
            
            $
            4.04
            
            $
            4.75








See
      accompanying notes to the consolidated financial statements.








-
          47
          -
 **Table
          of Contents**





**ITLA
      CAPITAL CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITYAND
      COMPREHENSIVE INCOME**





**Comprehensive
                Income****Common
                Stock**
            
            
            
            
            
            
            
            **Reclassification
                of****Number
                of shares**
            
            **Shareholders’
                Equity**
            
            
            
            
            
            **Realized
                Gains****Gross**
            
            
            
            **Net**
            
            **Contributed
                Capital**
            
            **Accumulated**
            
            
            
            
            
            
            
            **Unrealized**
            
            **Previously****Shares**
            
            
            
            **Shares**
            
            
            
            
            
            **Total**
            
            
            
            **Other**
            
            **Treasury**
            
            
            
            
            
            **Gain
                (Loss)**
            
            **Recognized
                in**
            
            **Total****Issued
                and**
            
            **Treasury**
            
            **Issued
                and**
            
            **Share**
            
            **Earned**
            
            **Contributed**
            
            **Retained**
            
            **Comprehensive**
            
            **Stock,**
            
            
            
            **Net**
            
            **on
                Securities,**
            
            **Comprehensive**
            
            **Comprehensive****Outstanding**
            
            **Shares**
            
            **Outstanding**
            
            **Capital**
            
            **Compensation**
            
            **Capital**
            
            **Earnings**
            
            **Income
                (Loss)**
            
            **At
                Cost**
            
            **Total**
            
            **Income**
            
            **Net
                of Tax**
            
            **Income,
                Net of Tax**
            
            **Income****(in
                thousands except share amounts)**Balance
                at January 1, 2004
            
            
            8,447,294
            
            
            (2,475,689
            )
            
            5,971,605
            
            $
            59,650
            
            $
            2,054
            
            $
            61,704
            
            $
            165,407
            
            $
            155
            
            $
            (40,367
            )
            $
            186,899Issuance
                of common stock - employee stock options
            
            
            256,600
            
            
            —
            
            
            256,600
            
            
            7,477
            
            
            —
            
            
            7,477
            
            
            —
            
            
            —
            
            
            —
            
            
            7,477Earned
                compensation from Supplemental Executive Retirement Plan /Recognition
                and
                Retention Plan, net
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            146
            
            
            146
            
            
            —
            
            
            —
            
            
            —
            
            
            146Common
                stock repurchased
            
            
            —
            
            
            (678,601
            )
            
            (678,601
            )
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (30,346
            )
            
            (30,346
            )Net
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            30,625
            
            
            —
            
            
            —
            
            
            30,625Other
                comprehensive income
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (77
            )
            
            —
            
            
            (77
            )
            $
            30,625
            
            $
            (77
            )
            $
            —
            
            $
            30,548Balance
                at December 31, 2004
            
            
            8,703,894
            
            
            (3,154,290
            )
            
            5,549,604
            
            $
            67,127
            
            $
            2,200
            
            $
            69,327
            
            $
            196,032
            
            $
            78
            
            $
            (70,713
            )
            $
            194,724Issuance
                of common stock-employee stock options, net
            
            
            275,104
            
            
            —
            
            
            275,104
            
            
            8,656
            
            
            —
            
            
            8,656
            
            
            —
            
            
            —
            
            
            —
            
            
            8,656Earned
                compensation from Supplemental Executive Retirement Plan / Recognition
                and
                Retention Plan, net
            
            
            —
            
            
            9,333
            
            
            9,333
            
            
            —
            
            
            21
            
            
            21
            
            
            —
            
            
            —
            
            
            84
            
            
            105Common
                stock repurchased
            
            
            —
            
            
            (431,738
            )
            
            (431,738
            )
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (22,625
            )
            
            (22,625
            )Net
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            24,063
            
            
            —
            
            
            —
            
            
            24,063Other
                comprehensive income
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (442
            )
            
            —
            
            
            (442
            )
            $
            24,063
            
            $
            (442
            )
            $
            —
            
            $
            23,621Balance
                at December 31, 2005
            
            
            8,978,998
            
            
            (3,576,695
            )
            
            5,402,303
            
            $
            75,783
            
            $
            2,221
            
            $
            78,004
            
            $
            220,095
            
            $
            (364
            )
            $
            (93,254
            )
            $
            204,481Issuance
                of common stock- employee stock options, net
            
            
            86,674
            
            
            —
            
            
            86,674
            
            
            3,692
            
            
            —
            
            
            3,692
            
            
            —
            
            
            —
            
            
            —
            
            
            3,692Earned
                compensation from Supplemental Executive Retirement Plan / Recognition
                and
                Retention Plan, net
            
            
            —
            
            
            1,735
            
            
            1,735
            
            
            —
            
            
            111
            
            
            111
            
            
            —
            
            
            —
            
            
            (75
            )
            
            36Common
                stock repurchased
            
            
            —
            
            
            (229,009
            )
            
            (229,009
            )
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (11,265
            )
            
            (11,265
            )Cash
                dividends declared ($0.60 per common share)
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (3,161
            )
            
            —
            
            
            —
            
            
            (3,161
            )Stock
                compensation expense recognized in earnings
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            266
            
            
            266
            
            
            —
            
            
            —
            
            
            —
            
            
            266Net
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            26,889
            
            
            —
            
            
            —
            
            
            26,889Other
                comprehensive income
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            399
            
            
            —
            
            
            399
            
            $
            26,889
            
            $
            399
            
            $
            —
            
            $
            27,288Balance
                at December 31, 2006
            
            
            9,065,672
            
            
            (3,803,969
            )
            
            5,261,703
            
            $
            79,475
            
            $
            2,598
            
            $
            82,073
            
            $
            243,823
            
            $
            35
            
            $
            (104,594
            )
            $
            221,337





See
      accompanying notes to the consolidated financial statements.








-
          48
          -
 **Table
          of Contents**





**ITLA
      CAPITAL CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTSOF CASH FLOWS**




**Years
                  Ended December 31,****2006**
              
              **2005**
              
              **2004****(in
                  thousands)**Cash
                  Flows From Operating Activities:Net
                  Income
              
              $
              26,889
              
              $
              24,063
              
              $
              30,625Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
                  and amortization of premises and equipment
              
              
              2,690
              
              
              2,682
              
              
              2,086Amortization
                  of premium on purchased loans
              
              
              4,732
              
              
              3,114
              
              
              2,196Accretion
                  of deferred loan origination fees, net of costs
              
              
              (2,846
              )
              
              (2,897
              )
              
              (1,794
              )Provision
                  for loan losses
              
              
              5,000
              
              
              10,250
              
              
              4,725Provision
                  for losses on other real estate owned
              
              
              —
              
              
              —
              
              
              1,000Gain
                  on sale of loans, net
              
              
              —
              
              
              (4,911
              )
              
              (9,284
              )Deferred
                  income tax expense (benefit)
              
              
              926
              
              
              (1,940
              )
              
              1,198Other,
                  net
              
              
              (2,020
              )
              
              2,928
              
              
              2,565(Increase)
                  decrease in interest receivable
              
              
              (4,466
              )
              
              (5,592
              )
              
              (1,737
              )Decrease
                  (increase) in other assets
              
              
              1,198
              
              
              (1,247
              )
              
              7,238Increase
                  in accounts payable and other liabilities
              
              
              5,231
              
              
              11,639
              
              
              795Net
                  cash provided by operating activities
              
              
              37,334
              
              
              38,089
              
              
              39,613Cash
                  Flows From Investing Activities:Purchases
                  of investment securities available-for-sale
              
              
              (44,331
              )
              
              (42,770
              )
              
              (45,269
              )Proceeds
                  from the maturity and calls of investment securities
                  available-for-sale
              
              
              38,159
              
              
              16,238
              
              
              31,048Purchases
                  of investment securities held-to-maturity
              
              
              (7,771
              )
              
              —
              
              
              (306,047
              )Proceeds
                  from the maturity and redemption of investment securities
                  held-to-maturity
              
              
              48,019
              
              
              62,033
              
              
              10,066Purchase
                  of stock in Federal Home Loan Bank
              
              
              (2,675
              )
              
              (19,252
              )
              
              (4,462
              )Purchase
                  of loans
              
              
              (497,785
              )
              
              (723,822
              )
              
              (139,486
              )Origination
                  of RAL loans
              
              
              —
              
              
              —
              
              
              (12,949,433
              )Proceeds
                  from the participation in RAL loans
              
              
              —
              
              
              —
              
              
              12,958,717Proceeds
                  from the sale of franchise loans
              
              
              —
              
              
              115,508
              
              
              —Decrease
                  (increase) in loans, net
              
              
              38,072
              
              
              (130,937
              )
              
              (155,887
              )Proceeds
                  from sale of other real estate owned
              
              
              135
              
              
              81
              
              
              8,318Cash
                  paid for capital expenditures
              
              
              (3,823
              )
              
              (2,755
              )
              
              (2,965
              )Net
                  cash used in investing activities
              
              
              (432,000
              )
              
              (725,676
              )
              
              (595,400
              )Cash
                  Flows From Financing Activities:Proceeds
                  from exercise of employee stock options
              
              
              3,692
              
              
              4,650
              
              
              4,159Cash
                  paid to acquire treasury stock
              
              
              (11,374
              )
              
              (22,625
              )
              
              (30,346
              )Cash
                  dividends paid
              
              
              (2,371
              )
              
              —
              
              
              —Principal
                  payments on collateralized mortgage obligations
              
              
              —
              
              
              —
              
              
              (15,868
              )Increase
                  in deposit accounts
              
              
              323,977
              
              
              303,396
              
              
              285,015Net
                  proceeds from (repayments of) short-term borrowings
              
              
              89,293
              
              
              (77,795
              )
              
              (85,000
              )Proceeds
                  from long-term borrowings
              
              
              89,869
              
              
              586,215
              
              
              363,689Repayments
                  of long-term borrowings
              
              
              (161,719
              )
              
              (100,087
              )
              
              (56,600
              )Net
                  cash provided by financing activities
              
              
              331,367
              
              
              693,754
              
              
              465,049Net
                  (decrease) increase in cash and cash equivalents
              
              
              (63,299
              )
              
              6,167
              
              
              (90,738
              )Cash
                  and cash equivalents, beginning of period
              
              
              93,747
              
              
              87,580
              
              
              178,318Cash
                  and cash equivalents, end of period
              
              $
              30,448
              
              $
              93,747
              
              $
              87,580Supplemental
                  Cash Flow Information:Cash
                  paid during the period for interest
              
              $
              124,755
              
              $
              82,326
              
              $
              40,759Cash
                  paid during the period for income taxes
              
              $
              16,668
              
              $
              10,033
              
              $
              14,329Non-cash
                  Investing Transactions:Loans
                  transferred to other real estate owned
              
              $
              3,499
              
              $
              4,030
              
              $
              1,855Loans
                  to facilitate the sale of other real estate owned
              
              $
              560
              
              $
              —
              
              $
              1,759Cash
                  dividends declared but not yet paid
              
              $
              790
              
              $
              —
              
              $
              —
  See
        accompanying notes to the consolidated financial
        statements.


-
          49
          -
 **Table
          of Contents**





**ITLA
      CAPITAL CORPORATION AND SUBSIDIARIES**





**NOTES
      TO CONSOLIDATEDFINANCIAL STATEMENTS**





**DECEMBER
      31, 2006, 2005 AND 2004**





**NOTE
      1—ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**





**Organization** -
      ITLA
      Capital Corporation and subsidiaries (“ITLA Capital” or “the Company”) is
      primarily engaged in the origination of real estate loans secured by income
      producing real estate and, to a lesser extent, the origination of entertainment
      finance loans. Through its principal operating subsidiary, Imperial Capital
      Bank
      (“Imperial” or “the Bank”), the Company accepts deposits insured by the Federal
      Deposit Insurance Corporation (“FDIC”) which are used primarily to fund loan
      production. The Company also holds certain multi-family and commercial real
      estate loans through its subsidiary, Imperial Capital Real Estate Investment
      Trust (“Imperial Capital REIT”).





In
      November 2002, the Company entered into a strategic business relationship with
      various subsidiaries of Household International, Inc. (“Household”) relating to
      certain tax refund products. In connection with this relationship, the Bank
      originated tax refund anticipation loans (“RAL”) and sold Household a
      non-recourse participation interest representing substantially all of the
      outstanding loan balance. Under the agreement, Household supported the Bank’s
      credit administration, compliance, treasury, and accounting functions with
      a
      range of services relating to the administration of this program. Household
      also
      serviced the loans on behalf of the Bank. The Company also entered into an
      agreement in December 2002 with Household pursuant to which the Bank originated
      private label commercial revolving credit loans to small businesses. This
      agreement was for a two-year term. These loans were used primarily to fund
      purchases from major retailers. Pursuant to this agreement, the Bank sold
      Household a non-recourse participation interest representing substantially
      all
      of the outstanding loan balance. During 2004, Household and its affiliates
      terminated their RAL and private label commercial credit loan programs with
      the
      Bank.





As
      of
      December 31, 2006 and 2005, the Bank had no tax refund anticipation loans
      outstanding and no private label commercial revolving loans outstanding. For
      the
      year ended December 31, 2004, fee income earned in connection with the RAL
      program consisted of approximately $9.3 million of net premiums on the sale
      of
      RAL loans and $4.6 million of processing and administrative fees. Because the
      RAL program related to the filing of income tax returns, transaction activity
      was concentrated during the tax season. This resulted in the Company earning
      substantially all of its RAL program income in the first quarter of each year
      during the program. For the years ended December 31, 2006 and 2005, no income
      was earned in connection with these programs.





Imperial
      began operating as a California industrial bank in 1974, and became a publicly
      traded company in October 1995, when its shares were sold in an initial public
      offering. Imperial operates six retail branches in California and one branch
      in
      Nevada, along with 23 loan origination offices serving the Western United
      States, the Southeast region, the Mid-Atlantic region, the Ohio Valley, the
      Metro New York area and New England.





In
      December 2002, the Bank received regulatory approval to convert to a California
      state chartered commercial bank from a California industrial bank. In addition,
      ITLA Capital was approved by the Federal Reserve Bank to become a bank holding
      company. The Bank began operating as a commercial bank and ITLA Capital became
      a
      bank holding company in January 2003.





**Financial
      Statement Presentation —** The
      accounting and reporting policies of the Company conform to accounting
      principles generally accepted in the United States (“GAAP”) and to prevailing
      practices within the financial services industry. The consolidated financial
      statements include the accounts of the Company and its wholly-owned
      subsidiaries. All material intercompany transactions and balances have been
      eliminated. Certain amounts in prior periods have been reclassified to conform
      to the presentation in the current period. The preparation of financial
      statements in conformity with GAAP requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting period. Actual results could differ from those estimates.





**Cash
      and Cash Equivalents —** We
      consider all highly liquid investments with original maturities of three months
      or less to be cash equivalents.








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**Investment
      Securities —** Investment
      securities available-for-sale are carried at fair value with unrealized gains
      or
      losses reported net of taxes as a component of accumulated other comprehensive
      income (loss) until realized. Realized gains and losses are determined using
      the
      specific identification method. Investment securities held-to-maturity represent
      investments that the Company has the ability and intent to hold to maturity.
      These investments are reported at cost and are adjusted for the accretion and
      amortization of premiums and discounts on the effective interest method.





**Loans
      —** Loans,
      which include real estate loans, franchise loans, entertainment finance loans,
      and commercial and other loans, are generally carried at principal amounts
      outstanding plus purchase premiums and the net deferred loan origination costs,
      less charge-offs. Deferred loan origination costs include deferred unamortized
      loan origination costs net of loan fees and other unearned income collected
      in
      connection with the origination of a loan. Interest income is accrued as earned.
      Net purchase premiums or discounts and deferred loan origination costs are
      amortized or accreted into interest income using the interest
      method.





Loans
      are
      placed on nonaccrual status when they become 90 days or more contractually
      delinquent or earlier if the collection of interest is considered by management
      to be unlikely. When a loan is placed on nonaccrual status, all previously
      accrued but uncollected interest is reversed against current period operating
      results. Subsequent cash collections on nonaccrual loans are either recognized
      as interest income on a cash basis if the loan is well secured and in
      management’s judgment the net book value is fully collectible, or recorded as a
      reduction of principal.





Loans
      are
      considered impaired when, based upon current information and events, it is
      probable that the Company will be unable to collect all principal and interest
      amounts due according to the original contractual terms of the loan agreement
      on
      a timely basis. The Company evaluates impairment on a loan-by-loan basis. Once
      a
      loan is determined to be impaired, the impairment is measured based on the
      present value of the expected future cash flows discounted at the loan’s
      effective interest rate or by using the loan’s most recent market value or the
      fair value of the collateral if the loan is collateral dependent.





When
      the
      measurement of an impaired loan is less than the recorded amount of the loan,
      a
      valuation allowance is established by recording a charge to the provision for
      loan losses. Subsequent increases or decreases in the valuation allowance for
      impaired loans are recorded by adjusting the existing valuation allowance for
      the impaired loan with a corresponding charge or credit to the provision for
      loan losses.





Our
      policy for recognizing interest income on impaired loans is the same as that
      for
      nonaccrual loans.





**Allowance
      for Loan Losses** —
We
      maintain an allowance for loan losses at a level considered adequate to cover
      probable losses on loans. In evaluating the adequacy of the allowance for loan
      losses, management estimates the amount of the loss for each loan that has
      been
      identified as having more than standard credit risk. Those estimates give
      consideration to, among other factors, economic conditions, estimated real
      estate collateral value and cash flow, and the financial strength and commitment
      of the borrower or guarantors, where appropriate. Additionally, an estimate
      for
      loan loss is calculated for the remaining portion of the portfolio giving
      consideration to the Company’s historical loss experience in the portfolio,
      adjusted, as appropriate, for the estimated effects of current economic
      conditions and changes in the composition of the loan portfolio over time.
      Loan
      losses are charged against the allowance when management believes the
      uncollectibility of a loan balance, or portion thereof, has been
      confirmed.





**Other
      Real Estate Owned** —
Other
      real estate owned (“OREO”) represents real estate acquired through or in lieu of
      foreclosure. OREO is held for sale and is initially recorded at fair value
      less
      estimated costs of disposition at the date of foreclosure, establishing a new
      cost basis. Subsequent to foreclosure, valuations are periodically performed
      by
      management and the assets are carried at the lower of cost or estimated fair
      value less costs of disposition. The net operating results from OREO are
      recognized as non-interest expense.





**Premises
      and Equipment —** Premises
      and equipment are recorded at cost, less accumulated depreciation and
      amortization. Depreciation is calculated on the straight-line method over the
      estimated useful lives of the assets ranging from three to twelve years.
      Amortization of leasehold improvements is calculated on the straight-line method
      over the shorter of the estimated useful lives of the assets or the
      corresponding contractual lease term, which does not generally include renewal
      options.





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**Goodwill
      —** The
      Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142,
“Goodwill and Other Intangible Assets”, on January 1, 2002. The adoption of SFAS
      No. 142 ceased the amortization of goodwill and requires an annual assessment
      for impairment by applying a fair-value-based test. In accordance with SFAS
      No.
      142, the Company assesses the goodwill for impairment on an annual basis, or
      on
      an interim basis if events or circumstances indicate the fair value of the
      goodwill has decreased below its carrying value. As of December 31, 2006 and
      2005, the Company evaluated its goodwill, and determined that no impairment
      was
      required.





**Income
      Taxes —** Provision
      for income taxes is the amount of estimated tax due reported on our tax returns
      and the change in the amount of deferred tax assets and liabilities. Deferred
      income taxes represent the estimated net income tax expense payable (or benefits
      receivable) for temporary differences between the carrying amounts for financial
      reporting purposes and the amounts used for tax purposes.





**Earnings
      Per Share** —
      Earnings per share (“EPS”) for all periods presented in the consolidated
      statements of income are computed in accordance with the provisions of SFAS
      No.
      128, “Earnings Per Share”, and are based on the weighted-average number of
      shares outstanding during each year. Basic EPS excludes dilution and is computed
      by dividing income available to common shareholders by the weighted-average
      number of common shares outstanding during the period. Diluted EPS includes
      the
      effect of common stock equivalents of the Company, which include only shares
      issuable on the exercise of outstanding options. A reconciliation of the
      computation of Basic EPS and Diluted EPS is presented in Note 16 — Earnings Per
      Share.





**Stock-Based
      Compensation** — **** Prior
      to
      January 1, 2006, the Company’s stock-based compensation plans were accounted for
      in accordance with Accounting Principles Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued to Employees.” Under APB Opinion No. 25, no
      compensation expense was recognized for a stock option grant if the exercise
      price of the stock option at measurement date was equal to or greater than
      the
      fair market value of the common stock on the date of grant. The Company also
      applied SFAS No. 123, “Accounting for Stock-Based Compensation”, for disclosure
      purposes only. SFAS No. 123 disclosures include pro forma net income and
      earnings per share as if the fair value-based method of accounting had been
      used.





Effective
      January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based
      Payment”, which requires the recognition of the expense related to the fair
      value of stock-based compensation awards within the consolidated statement
      of
      income. The Company elected the modified prospective transition method as
      permitted by SFAS No. 123(R), and accordingly, results from prior periods have
      not been restated. Under this transition method, stock-based compensation
      expense for the year ended December 31, 2006 includes compensation expense
      for
      unvested stock-based compensation awards that were outstanding as of January
      1,
      2006, for which the requisite service was rendered during the year. The
      stock-based compensation costs for these awards granted prior to January 1,
      2006
      were based on the grant date fair value estimated in accordance with the
      original provisions of SFAS No. 123. Compensation expense for all stock-based
      compensation awards granted subsequent to January 1, 2006 were based on the
      grant date fair value estimated in accordance with the provisions of SFAS No.
      123(R).





Total
      stock-based compensation expense included in our consolidated statement of
      income for the year ended December 31, 2006 was approximately $266,000
      ($160,000, net of tax, or $0.03 per diluted share). No stock-based compensation
      expense was included in the consolidated statements of income for the years
      ended December 31, 2005 and 2004. Unrecognized stock-based compensation expense
      related to unvested stock options was approximately $66,000 at December 31,
      2006. At that date, the weighted-average period over which the unrecognized
      expense was expected to be recognized was 2.22 years.





Prior
      to
      the adoption of SFAS No. 123(R), we reported all tax benefits resulting from
      the
      exercise of stock options as operating cash flows in our consolidated statements
      of cash flows. In accordance with SFAS No. 123(R), for the year ended December
      31, 2006, the presentation of our statement of cash flows has changed from
      prior
      periods to report the excess tax benefits from the exercise of stock options
      as
      financing cash flows. For the year ended December 31, 2006, $627,000 of excess
      tax benefits was reported as financing cash flows.








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The
      table
      below illustrates the effect on net earnings and earnings per share as if we
      had
      applied the fair value recognition provisions of SFAS No. 123 to stock-based
      compensation during the years ended December 31, 2005 and 2004.




**For
                  the Years Ended December 31,****2005**
              
              **2004****(in
                  thousands, except per share data)**Net
                  income, as reported
              
              $
              24,063
              
              $
              30,625Less:
                  Stock-based employee compensation expense determined under the
                  fair value
                  method, net of tax
              
              
              (4,189
              )
              
              (775
              )Pro
                  forma net income
              
              $
              19,874
              
              $
              29,850Earnings
                  per share:Basic
                  - as reported
              
              $
              4.19
              
              $
              5.04Basic
                  - pro forma
              
              $
              3.46
              
              $
              4.91Diluted
                  - as reported
              
              $
              4.04
              
              $
              4.75Diluted
                  - pro forma
              
              $
              3.33
              
              $
              4.63





Effective
      December 8, 2005, the Company accelerated the vesting of all unvested stock
      options previously awarded to employees and officers under the Company’s stock
      option plans. The decision to accelerate the vesting of these options as of
      that
      date was made primarily to reduce non-cash compensation expense that would
      otherwise have been recorded in the Company’s income statement on January 1,
      2006 upon the adoption of SFAS No. 123 (R). The stock based compensation expense
      for the year ended December 31, 2005 determined under the fair value method,
      net
      of related tax effects, shown above includes the effect of acceleration of
      the
      vesting of the options outstanding. The impact on the stock based compensation
      expense disclosure above for fiscal year 2005 was an additional $0.2 million,
      or
      $0.04 per fully diluted weighted average share.





The
      fair
      value of each option grant was estimated on the date of grant using an option
      pricing model with the following weighted-average assumptions for option
      grants:





**Weighted-Average
                Assumptions for Option****Grants****2006**
            
            **2005**
            
            **2004**Dividend
                Yield
            
            
            1.17
            %
            
            0.00
            %
            
            0.00
            %Expected
                Volatility
            
            
            22.86
            %
            
            37.59
            %
            
            36.17
            %Risk-Free
                Interest Rates
            
            
            4.94
            %
            
            4.33
            %
            
            4.12
            %Expected
                Lives
            
            
            5
                Years
            
            
            5.5
                Years
            
            
            7
                YearsWeighted-Average
                Fair Value
            
            $
            13.68
            
            $
            20.69
            
            $
            18.44





**Other
      Comprehensive Income** —
Other
      comprehensive income is displayed in the Consolidated Statements of Changes
      in
      Shareholders’ Equity and Comprehensive Income and consists of the change in net
      unrealized holding gain or loss on securities classified as available-for-sale,
      net of the related income tax effect.





**New
      Accounting Pronouncements** — **** In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      123 (revised 2004), “Share-Based Payment”, which is a revision of SFAS No. 123.
      SFAS No. 123(R) supersedes APB Opinion No. 25. Generally, the approach to
      accounting for share-based payments in SFAS No. 123(R) is similar to the
      approach described in SFAS No. 123. However, SFAS No. 123(R) requires
      share-based payments to employees, including grants of employee stock options,
      to be recognized in the financial statements based on their grant date fair
      values (i.e., pro forma disclosure is no longer an alternative to financial
      statement recognition). The Company adopted SFAS No. 123(R) on January 1, 2006
      using a modified version of prospective application (“modified prospective
      application”). Under modified prospective application, as it is applicable to
      the Company, SFAS No. 123(R) applies to new awards and to awards modified,
      repurchased, or cancelled after January 1, 2006. Additionally, compensation
      cost
      for the portion of awards for which the requisite service has not been rendered
      (generally referring to non-vested awards) that are outstanding as of January
      1,
      2006 must be recognized as the remaining requisite service is rendered over
      periods after the adoption of SFAS No. 123(R). The attribution of compensation
      cost for those earlier awards will be based on the same method and on the same
      grant-date fair values previously determined for the pro forma disclosures
      required for companies that did not adopt the fair value accounting method
      for
      stock-based employee compensation.





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In
      February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments”— an amendment of SFAS Nos. 133 and 140. SFAS No. 155
      permits fair value remeasurement for any hybrid financial instrument that
      contains an embedded derivative that otherwise would require bifurcation,
      clarifies which interest-only strips and principal-only strips are not subject
      to the requirements of SFAS No. 133, establishes a requirement to evaluate
      interests in securitized financial assets to identify interests that are
      freestanding derivatives or that are hybrid financial instruments that contain
      an embedded derivative requiring bifurcation, clarifies that concentrations
      of
      credit risk in the form of subordination are not embedded derivatives, and
      amends SFAS No. 140 to eliminate the prohibition on a qualifying special purpose
      entity from holding a derivative financial instrument that pertains to a
      beneficial interest other than another derivative financial instrument. This
      statement is effective for the Company on January 1, 2007. Management does
      not
      expect the adoption of SFAS No. 155 to have a material impact on the Company’s
      financial condition or results of operations.





In
      March
      2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Assets”. This statement amends SFAS No. 140, “Accounting for Transfers and
      Servicing of Financial Assets and Extinguishments of Liabilities”, with respect
      to the accounting for separately recognized servicing assets and servicing
      liabilities. SFAS No. 156 requires companies to recognize a servicing asset
      or
      servicing liability each time it undertakes an obligation to service a financial
      asset by entering into a servicing contract. The statement permits a company
      to
      choose either the amortized cost method or fair value measurement method for
      each class of separately recognized servicing assets. This statement is
      effective for the Company on January 1, 2007. Management does not expect the
      adoption of SFAS No. 156 to have a material impact on the Company’s financial
      condition or results of operations.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS
      No. 157 defines fair value, establishes a framework for measuring fair value
      in
      generally accepted accounting principles, and expands disclosures about fair
      value measurements. SFAS No. 157 is effective for the Company on January 1,
      2008. Management is currently evaluating the impact of the adoption of SFAS
      No.
      157 on the Company’s financial condition and results of operations.





In
      June
      2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
      establishes a single model to address accounting for uncertainty in tax
      positions. FIN 48 clarifies the accounting for uncertainty in income taxes
      by
      prescribing a recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken, or expected
      to be
      taken, in a tax return. The interpretation also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure and transition requirements. FIN 48 is effective for the
      Company on January 1, 2007. Management does not expect the adoption of FIN
      48 to
      have a material impact on the Company’s financial condition or results of
      operations.





In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”,
      which is a replacement of APB Opinion No. 20, “Accounting Changes”, and SFAS No.
      3, “Reporting Accounting Changes in Interim Financial Statements”. SFAS No. 154
      applies to all voluntary changes in accounting principle, and changes the
      requirements for accounting for and reporting of a change in accounting
      principle. SFAS No. 154 requires retrospective application to prior periods’
financial statements of a voluntary change in accounting principle unless it
      is
      impracticable. APB Opinion No. 20 previously required that most voluntary
      changes in accounting principle be recognized by including in net income of
      the
      period of the change the cumulative effect of changing to the new accounting
      principle. The adoption of SFAS No. 154 on January 1, 2006 did not have a
      material impact on the Company’s financial condition or results of
      operations.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities." SFAS No. 159 provides companies
      with an option to report selected financial assets and liabilities at fair
      value.  The objective of SFAS No. 159 is to reduce both complexity in
      accounting for financial instruments and the volatility in earnings caused
      by
      measuring related assets and liabilities differently. SFAS No. 159 also
      establishes presentation and disclosure requirements designed to facilitate
      comparisons between companies that choose different measurement attributes
      for
      similar types of assets and liabilities. SFAS No. 159 is effective for us on
      January 1, 2008. Management does not expect the adoption of SFAS No. 159 to
      have
      a material impact on the Company’s financial condition or results of
      operations.








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**NOTE
      2—INVESTMENT SECURITIES**





The
      amortized cost and fair value of investment securities as of December 31, 2006
      and 2005 are as follows:








**Amortized**
            
            **Fair**
            
            **Gross
                Unrealized****Cost**
            
            **Value**
            
            **Gains**
            
            **Losses****(in
                thousands)****December
                31, 2006:**Investment
                securities available-for-sale:U.S.
                agency securities
            
            $
            62,554
            
            $
            62,184
            
            $
            3
            
            $
            373Collateralized
                mortgage obligations
            
            
            34,991
            
            
            35,127
            
            
            163
            
            
            27Residual
                interest in securitized loans
            
            
            1,911
            
            
            2,039
            
            
            128
            
            
            —Equity
                securities
            
            
            13
            
            
            177
            
            
            170
            
            
            6Total
                investment securities available-for-sale
            
            $
            99,469
            
            $
            99,527
            
            $
            464
            
            $
            406Investment
                securities held-to-maturity:Mortgage-backed
                securities
            
            $
            193,512
            
            $
            190,475
            
            $
            105
            
            $
            3,142**December
                31, 2005:**Investment
                securities available-for-sale:U.S.
                agency securities
            
            $
            89,897
            
            $
            88,829
            
            $
            —
            
            $
            1,068Residual
                interest in securitized loans
            
            
            3,257
            
            
            3,570
            
            
            313
            
            
            —Equity
                securities
            
            
            16
            
            
            164
            
            
            149
            
            
            1Total
                investment securities available-for-sale
            
            $
            93,170
            
            $
            92,563
            
            $
            462
            
            $
            1,069Investment
                securities held-to-maturity:Mortgage-backed
                securities
            
            $
            233,880
            
            $
            229,025
            
            $
            —
            
            $
            4,855








The
      amortized cost and approximate fair value of securities at December 31, 2006
      are
      presented below by contractual maturity. Mortgage-backed securities and
      collateralized mortgage obligations are included in maturity categories based
      on
      their stated maturity date. Expected maturities may differ from contractual
      maturities because issuers may have the right to prepay obligations. Equity
      securities classified as available-for-sale have no maturity and are included
      in
      the due in one year or less column.




**Available-for-Sale**
            
            **Held-to-Maturity****Amortized**
              ******Cost**
            
            **Estimated**
              **Fair
                Value**
            
            **Amortized**
              ******Cost**
            
            **Estimated**
              **Fair
                Value****(in
                thousands)**Due
                in one year or less
            
            $
            52,600
            
            $
            52,462
            
            $
            —
            
            $
            —Due
                after one year through five years
            
            
            11,878
            
            
            11,938
            
            
            —
            
            
            —Due
                after five years through ten years
            
            
            14,903
            
            
            14,899
            
            
            —
            
            
            —Due
                after ten years
            
            
            20,088
            
            
            20,228
            
            
            193,512
            
            
            190,475$
            99,469
            
            $
            99,527
            
            $
            193,512
            
            $
            190,475





At
      December 31, 2006, the remaining contractual maturity and weighted average
      life
      of the mortgage-backed securities held-to-maturity was approximately 27.6 and
      3.2 years, respectively. Additionally, the remaining contractual maturity and
      weighted average life of the collateralized mortgage obligations was
      approximately 17.4 and 2.3 years, at December 31, 2006. The weighted average
      life of mortgage-backed securities and collateralized mortgage obligations
      differs from the contractual maturity due to anticipated principal
      prepayments.








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A
      total
      of 25 securities had unrealized losses at December 31, 2006. These
      securities, with unrealized losses segregated by length of impairment, were
      as
      follows:





**Less
                than 12 months**
            
            **More
                than 12 months**
            
            **Total****Estimated**
              **Fair
                Value**
            
            **Unrealized**
              **Losses**
            
            **Estimated**
              **Fair
                Value**
            
            **Unrealized**
              **Losses**
            
            **Estimated**
              **Fair
                Value**
            
            **Unrealized**
              **Losses****(in
                thousands)**Investment
                securities available-for-saleU.S.
                agency securities
            
            $
            —
            
            $
            —
            
            $
            56,214
            
            $
            373
            
            $
            56,214
            
            $
            373Collateralized
                mortgage obligations
            
            
            9,022
            
            
            27
            
            
            —
            
            
            —
            
            
            9,022
            
            
            27Equity
                securities
            
            
            —
            
            
            —
            
            
            4
            
            
            6
            
            
            4
            
            
            6Total
                investment securities available-for-sale
            
            $
            9,022
            
            $
            27
            
            $
            56,218
            
            $
            379
            
            $
            65,240
            
            $
            406Investment
                securities held-to-maturity
              Mortgage-backed
                securities
            
            $
            —
            
            $
            —
            
            $
            182,953
            
            $
            3,142
            
            $
            182,953
            
            $
            3,142





A
      total
      of 31 securities had unrealized losses at December 31, 2005. These securities,
      with unrealized losses segregated by length of impairment, were as
      follows:





**Less
                than 12 months**
            
            **More
                than 12 months**
            
            **Total****Estimated**
              **Fair
                Value**
            
            **Unrealized**
              **Losses**
            
            **Estimated**
              **Fair
                Value**
            
            **Unrealized**
              **Losses**
            
            **Estimated**
              **Fair
                Value**
            
            **Unrealized**
              **Losses****(in
                thousands)**Investment
                securities available-for-saleU.S.
                agency securities
            
            $
            56,819
            
            $
            582
            
            $
            32,010
            
            $
            486
            
            $
            88,829
            
            $
            1,068Investment
                securities held-to-maturity
              Mortgage-backed
                securities
            
            $
            111,168
            
            $
            2,115
            
            $
            117,857
            
            $
            2,740
            
            $
            229,025
            
            $
            4,855





Declines
      in the fair value of held-to-maturity and available-for-sale securities below
      their cost that are deemed to be other than temporary are reflected in earnings
      as realized losses. In estimating other-than-temporary impairment losses,
      management considers, among other things, (i) the length of time and the
      extent to which the fair value has been less than cost, (ii) the financial
      condition and near-term prospects of the issuer, and (iii) the intent and
      ability of the Company to retain its investment in the issuer for a period
      of
      time sufficient to allow for any anticipated recovery in fair
      value.





Management
      has the ability and intent to hold the securities classified as held-to-maturity
      until they mature, at which time the Company expects to receive the face or
      par
      value of the securities. Furthermore, as of December 31, 2006, management
      also had the ability and intent to hold the securities classified as
      available-for-sale for a period of time sufficient for a recovery of cost.
      The
      unrealized losses are largely due to increases in market interest rates over
      the
      yields available at the time the underlying securities were purchased. The
      fair
      value is expected to recover as the bonds approach their maturity date or
      repricing date or if market yields for such investments decline. Management
      does
      not believe any of the securities are impaired due to reasons of credit quality.
      Accordingly, as of December 31, 2006, management believes the impairments
      detailed in the table above are temporary and no other-than-temporary impairment
      loss has been realized in the Company’s consolidated statements of
      income.





During
      2006 and 2005, no securities were sold prior to their maturity or call date.
      There were no realized gains or losses on investment securities for the years
      ended December 31, 2006, 2005 and 2004.








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**NOTE
      3—LOANS**





Loans
      consisted of the following:





**December
                31,****2006**
            
            **2005****(in
                thousands)**Real
                estate loans
            
            $
            2,546,904
            
            $
            2,154,372Construction
                loans
            
            
            347,751
            
            
            302,932Entertainment
                finance loans
            
            
            74,204
            
            
            66,514Franchise
                loans
            
            
            9,334
            
            
            13,705Commercial
                and other loans
            
            
            9,346
            
            
            7,2642,987,539
            
            
            2,544,787Unamortized
                premium
            
            
            18,138
            
            
            14,582Deferred
                loan origination costs, net
            
            
            13,740
            
            
            7,9283,019,417
            
            
            2,567,297Allowance
                for loan losses
            
            
            (46,049
            )
            
            (43,817
            )$
            2,973,368
            
            $
            2,523,480





At
      December 31, 2006, approximately 85.8%, 12.8% and 1.4% of the Bank’s loans
      collateralized by real estate were secured by income producing properties,
      properties under development and residential one-to-four family properties,
      respectively. At December 31, 2006, approximately 54.4% of our loans secured
      by
      real estate were collateralized by properties located in
      California.





At
      December 31, 2005, approximately 83.1%, 12.7% and 4.2% of the Bank’s loans
      collateralized by real estate were secured by income producing properties,
      properties under development and residential one-to-four family properties,
      respectively. At December 31, 2005, approximately 59.2% of our loans secured
      by
      real estate were collateralized by properties located in
      California.





At
      December 31, 2006 and 2005, approximately $2.0 billion and $1.8 billion,
      respectively, of loans were pledged to secure a borrowing facility at the
      Federal Home Loan Bank (“FHLB”) of San Francisco.





The
      following is the activity in the allowance for loan losses on loans for the
      periods indicated.





**As
                of and for the Years**
              **Ended
                December 31,****2006**
            
            **2005**
            
            **2004****(in
                thousands)**Balance
                at beginning of year
            
            $
            43,817
            
            $
            35,483
            
            $
            33,401Provision
                for loan losses
            
            
            5,000
            
            
            10,250
            
            
            4,725Charge-offs:Real
                estate loans
            
            
            (1,634
            )
            
            (1,584
            )
            
            (189
            )Entertainment
                finance loans
            
            
            (2,500
            )
            
            (395
            )
            
            (2,180
            )Franchise
                loans
            
            
            —
            
            
            (451
            )
            
            —Commercial
                and other loans
            
            
            —
            
            
            —
            
            
            (1,121
            )Total
                charge-offs
            
            
            (4,134
            )
            
            (2,430
            )
            
            (3,490
            )Recoveries:Real
                estate loans
            
            
            894
            
            
            88
            
            
            89Entertainment
                finance loans
            
            
            472
            
            
            426
            
            
            —Commercial
                and other loans
            
            
            —
            
            
            —
            
            
            758Total
                recoveries
            
            
            1,366
            
            
            514
            
            
            847Net
                charge-offs
            
            
            (2,768
            )
            
            (1,916
            )
            
            (2,643
            )Balance
                at end of year
            
            $
            46,049
            
            $
            43,817
            
            $
            35,483





As
      of
      December 31, 2006 and 2005, there were $61,000 and ($395,000), respectively,
      of
      entertainment finance loan recoveries, (charge-offs) related to borrowers
      domiciled outside of the United States.





As
      of
      December 31, 2006 and 2005, the accrual of income had been suspended on
      approximately $26.3 million and $24.3 million, respectively, of loans. Interest
      income that was contractually due on loans that were on nonaccrual status that
      was not recognized during the years ended December 31, 2006, 2005 and 2004
      was
      approximately $1.5 million, $1.6 million, and $784,000,
      respectively.








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As
      of
      December 31, 2006 and 2005, restructured loans totaled $13.4 million and $19.3
      million, respectively. There were no related commitments to lend additional
      funds on restructured loans. For the years ended December 31, 2006, 2005 and
      2004, $1.5 million, $1.9 million, and $1.1 million, respectively, of gross
      interest income would have been recorded had the loans been current in
      accordance with their original terms compared to $720,000, $1.4 million, and
      $734,000, respectively, of interest income that was included in net income
      for
      the same periods. The average yield on restructured loans was 9.15% and 7.37%,
      respectively, at December 31, 2006 and 2005.





As
      of
      December 31, 2006 and 2005, impaired loans totaled $35.5 million and $36.3
      million, respectively, with a valuation allowance provided for these loans
      of
      $8.5 million and $10.4 million, respectively. As of December 31, 2006 and 2005,
      impaired loans on nonaccrual status were $26.3 million and $24.1 million,
      respectively. There were no impaired loans without a valuation allowance as
      of
      December 31, 2006 and 2005. The average recorded investment in impaired loans
      for the years ended December 31, 2006, 2005 and 2004 was $32.3 million, $28.7
      million, and $19.5 million, respectively. Interest income recognized on impaired
      loans for the years ended December 31, 2006, 2005 and 2004 was $826,000,
      $945,000, and $430,000, respectively.





Loans
      having carrying values of $3.5 million and $4.0 million were transferred to
      OREO
      in 2006 and 2005, respectively.





During
      2005, the Bank sold approximately $110.0 million, or 89.0%, of its franchise
      loan portfolio resulting in a gain of $4.9  million
      recorded in other non-interest income within the consolidated statement of
      income.





**NOTE
      4—OTHER REAL ESTATE OWNED**





Other
      real estate owned was stated as follows:





**December
                31,****2006**
            
            **2005****(in
                thousands)**Other
                real estate owned held for sale
            
            $
            6,729
            
            $
            3,960Less:
                valuation allowance
            
            
            —
            
            
            —Other
                real estate owned, net
            
            $
            6,729
            
            $
            3,960





The
      activity in the valuation allowance for other real estate owned was as
      follows:





**As
                of and for the Years**
              **Ended
                December 31,****2006**
            
            **2005**
            
            **2004****(in
                thousands)**Balance
                at beginning of year
            
            $
            —
            
            $
            —
            
            $
            500Provision
                for losses on other real estate owned
            
            
            —
            
            
            —
            
            
            1,000Charge-offs
                on other real estate owned
            
            
            —
            
            
            —
            
            
            (1,500
            )Balance
                at end of year
            
            $
            —
            
            $
            —
            
            $
            —





**NOTE
      5—PREMISES AND EQUIPMENT**





Premises
      and equipment are stated at cost less accumulated depreciation and amortization
      and consist of the following:





**December
                31,****2006**
            
            **2005****(in
                thousands)**Furniture,
                fixtures and equipment
            
            $
            16,876
            
            $
            13,361Leasehold
                improvements
            
            
            6,327
            
            
            6,556Automobiles
            
            
            1,476
            
            
            98624,679
            
            
            20,903Accumulated
                depreciation and amortization
            
            
            (16,828
            )
            
            (14,185
            )$
            7,851
            
            $
            6,718





Depreciation
      and amortization expense on premises and equipment for the years ended December
      31, 2006, 2005 and 2004 was $2.7 million, $2.7 million, and $2.1 million,
      respectively.





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**NOTE
      6—DEPOSIT ACCOUNTS**





Deposit
      accounts consist of the following:





**December
                31,****2006**
            
            **2005****(in
                thousands)**Non-interest
                demand accounts
            
            $
            23,171
            
            $
            13,660Interest
                demand accounts
            
            
            24,523
            
            
            38,197Money
                market and passbook accounts
            
            
            210,236
            
            
            186,453Time
                certificates under $100,000
            
            
            784,732
            
            
            763,701Time
                certificates $100,000 and over
            
            
            1,016,743
            
            
            733,417$
            2,059,405
            
            $
            1,735,428





Demand
      deposit accounts have no contractual maturity. Interest bearing demand accounts
      paid interest at rates ranging from 2.57% to 2.96% per annum in 2006. The
      weighted average contractual interest rate of the Bank’s interest-bearing demand
      deposit accounts was 2.96% and 2.75% at December 31, 2006 and 2005,
      respectively. Money market and passbook accounts have no contractual maturity
      and paid interest at rates ranging from 1.25% to 5.08% per annum in 2006. The
      weighted average contractual interest rate of the Bank’s money market and
      passbook accounts was 4.90% and 3.77% at December 31, 2006 and 2005,
      respectively. Additionally, some money market accounts have limited checking
      features which allow three check withdrawals per month. Time certificates have
      maturities primarily ranging from 3 months to five years and bear interest
      at
      varying rates based on market conditions, ranging from 3.88% to 5.60% per annum
      in 2006. The weighted average contractual interest rate of the Bank’s time
      certificate accounts was 5.16% and 3.93% at December 31, 2006 and 2005,
      respectively.





Interest
      expense on time certificates $100,000 and over for the years ended December
      31,
      2006, 2005 and 2004 amounted to approximately $40.1 million, $22.7 million,
      and
      $10.0 million, respectively.





The
      Bank
      is a member of the FDIC and its deposits are insured up to $100,000 each per
      insured depositor. In addition, insurance coverage of up to $250,000 are
      available for “self-directed” retirement accounts.





As
      of
      December 31, 2006, the contractual maturities of time certificate accounts
      were
      as follows:





**Year
                of Maturity**
            
            **Amount****(in
                thousands)**2007
            
            $
            1,636,9982008
            
            
            66,7832009
            
            
            16,6492010
            
            
            38,8882011
                and thereafter
            
            
            42,157$
            1,801,475





**NOTE
      7 — LINES OF CREDIT**





As
      of
      December 31, 2006, the Bank had uncommitted, unsecured lines of credit of $128.0
      million with four unaffiliated financial institutions renewable daily. As of
      December 31, 2005, the Bank had uncommitted, unsecured lines of credit of $80.0
      million with three unaffiliated financial institutions renewable daily. There
      were no borrowings on these lines at December 31, 2006 and 2005.





The
      Company also has a $25.0 million revolving credit facility with an unaffiliated
      financial institution. The facility matures on April 30, 2007. There were no
      borrowings on this line of credit at December 31, 2006.








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**NOTE
      8 — JUNIOR**  **SUBORDINATED
      DEBENTURES**





The
      Company has created five trusts, Trust I, Trust II, Trust III, Trust IV, and
      Trust V. Trust I issued $14.0 million of 10.60% cumulative trust preferred
      securities in September 2000, Trust II issued $15.0 million of 10.20% cumulative
      trust preferred securities in February 2001, Trust III issued $20.0 million
      of
      variable rate cumulative trust preferred securities in October 2002, Trust
      IV
      issued $10.0 million of variable rate cumulative trust preferred securities
      in
      December 2002, and Trust V issued $25.0 million of variable rate cumulative
      trust preferred securities in December 2002 (referred to collectively as the
      “Trust Preferred securities”). ITLA Capital has fully and unconditionally
      guaranteed the Trust Preferred securities along with all obligations of each
      trust under their respective trust agreements. Each trust was formed for the
      exclusive purpose of issuing their respective Trust Preferred securities and
      common securities and using the proceeds to acquire ITLA Capital’s junior
      subordinated deferrable interest debentures. Trust I acquired an aggregate
      principal amount of $14.4 million of ITLA Capital’s 10.60% junior subordinated
      deferrable interest debentures due September 7, 2030 that pay interest each
      March 7 and September 7 during the term of this security. Trust II acquired
      an
      aggregate principal amount of $15.5 million of ITLA Capital’s 10.20% junior
      subordinated deferrable interest debentures due February 22, 2031 that pays
      interest each February 22 and August 22 during the term of this security. Trust
      III acquired an aggregate principal amount of $20.6 million of ITLA Capital’s
      variable rate junior subordinated deferrable interest debentures due October
      30,
      2032 that pays interest on each April 30 and October 30 during the term of
      the
      security. Trust IV acquired an aggregate principal amount of $10.3 million
      of
      ITLA Capital’s variable rate junior subordinated deferrable interest debentures
      due December 10, 2032 that pays interest each June 15 and December 15 during
      the
      term of the security. Trust V acquired an aggregate principal amount of $25.8
      million of ITLA Capital’s variable rate junior subordinated deferrable interest
      debentures due December 26, 2032 that pays interest quarterly on March 26,
      June
      26, September 26, and December 26 during the term of the security. The sole
      assets of each trust are the debentures it holds. Each of the debentures is
      redeemable, in whole or in part, at ITLA Capital’s option on or after ten years
      after issuance for Trust I and Trust II (at declining premiums during the 11th
      through the 20th year after issuance and at par during the 21st year and
      thereafter until maturity), and five years after issuance for Trust III, Trust
      IV, and Trust V (at par until maturity). Each of the debentures is also
      redeemable, in whole and not in part, at ITLA Capital’s option any time prior to
      maturity, upon the occurrence of certain special events, which include, among
      others, a determination by the Federal Reserve Board that the Trust Preferred
      securities do not qualify as Tier 1 capital (discussed below).





The
      Company used the proceeds from the debentures for general corporate purposes,
      including an aggregate of $81.3 million in capital contributions to the Bank
      to
      support future growth. The costs associated with the Trust Preferred securities
      issuance were netted with proceeds and are being amortized using a method that
      approximates the interest method over a period of five to ten years.





The
      trust
      preferred securities qualify as Tier 1 capital for ITLA Capital to the extent
      permitted under Federal Reserve Board regulations. See “Note 15 - Regulatory
      Requirements.”





**NOTE
      9 — FHLB ADVANCES**  **AND
      OTHER BORROWINGS**





FHLB
      advances represent $980.0 million of collateralized obligations with the FHLB
      of
      San Francisco. Other borrowings consist of $30.0 million of securities sold
      under agreements to repurchase, which mature within one year. FHLB Advances
      and
      other borrowings are summarized by contractual maturity as follows:





**Year
                of Maturity**
            
            **Amount****(in
                thousands)**2007
            
            $
            434,7652008
            
            
            188,6022009
            
            
            59,6462010
            
            
            222,9152011
            
            
            60,002Thereafter
            
            
            44,070$
            1,010,000





The
      Company has pledged real estate loans with a carrying value of $2.0 billion
      and
      investment securities held-to-maturity with a carrying and fair value of $44.9
      million and $44.5 million, respectively, to secure FHLB Advances. The total
      FHLB
      borrowing capacity available from the collateral that has been pledged is
      approximately $1.3 billion, of which $310.3 million remained available to borrow
      as of December 31, 2006, net of the $12.2 million of additional FHLB stock
      that
      we would be required to purchase to support the additional borrowing.
      Additionally, the Company has pledged investment securities held-to-maturity
      with a carrying and fair value of $31.6 million to secure securities sold under
      agreements to repurchase.








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The
      following table represents a summary of short and long-term borrowings for
      the
      periods indicated. Short-term borrowings consist entirely of FHLB
      advances.





**December
                31,****2006**
            
            
            **2005**
            
            
            **2004****(dollars
                in thousands)**Short-Term
                Borrowings:Maximum
                amount outstanding at any month-end during the year
            
            $
            177,498
            
            
            $
            112,000
            
            
            $
            199,000Weighted-average
                daily balance outstanding
            
            $
            15,094
            
            
            $
            38,566
            
            
            $
            91,316Weighted-average
                rate paid during the year
            
            
            4.96
            %
            
            
            3.19
            %
            
            
            1.53
            %Weighted-average
                rate on balance at year-end
            
            
            5.40
            %
            
            
            4.18
            %
            
            
            2.37
            %Balance
                at year-end
            
            $
            177,498
            
            
            $
            88,205
            
            
            $
            166,000Interest
                expense
            
            $
            749
            
            
            $
            1,230
            
            
            $
            1,664Long-Term
                Borrowings:Maximum
                amount outstanding at any month-end during the year
            
            $
            973,571
            
            
            $
            906,457
            
            
            $
            418,224Weighted-average
                daily balance outstanding
            
            $
            911,822
            
            
            $
            668,825
            
            
            $
            170,906Weighted-average
                rate paid during the year
            
            
            4.17
            %
            
            
            3.63
            %
            
            
            3.28
            %Weighted-average
                rate on balance at year-end
            
            
            4.25
            %
            
            
            4.00
            %
            
            
            3.16
            %Balance
                at year-end
            
            $
            832,502
            
            
            $
            904,352
            
            
            $
            418,224Interest
                expense
            
            $
            37,973
            
            
            $
            24,278
            
            
            $
            5,608





**NOTE
      10 - RESIDUAL INTEREST IN SECURITIZED LOANS**




During
      the first quarter of 2002, the Company formed a qualified special purpose entity
      (“QSPE”) to issue $86.3 million of asset-backed notes in a securitization of
      substantially all of the Company’s residential loan portfolio. Concurrent with
      recognizing the sale, the Company recorded a residual interest with an estimated
      fair value of $5.6 million, which represented the present value of future cash
      flows (spread and fees) that were estimated to be received over the life of
      the
      loans. The residual interest is recorded on the consolidated balance sheets
      in
“Investment securities available-for-sale, at fair value”. The value of the
      residual interest is subject to substantial credit, prepayment, and interest
      rate risk on the sold residential loans. The residual interest is classified
      as
“available-for-sale” and, as such, recorded at fair value with the resulting
      changes in fair value recorded as accumulated unrealized gain or loss in a
      separate component of shareholders’ equity until realized. Fair value is
      estimated on a monthly basis using a discounted cash flow analysis. These cash
      flows are estimated over the lives of the receivables using prepayment, default,
      and interest rate assumptions that management believes market participants
      would
      use for similar financial instruments.





During
      2005, the Company recognized an other-than-temporary impairment of $250,000,
      on
      the residual interest. Impairments that are deemed to be other-than-temporary
      are charged to non-interest income. In evaluating impairments as
      other-than-temporary the Company considers credit risk, as well as the magnitude
      and trend of default rates and prepayment speeds of the underlying residential
      loans .





At
      December 31, 2006 and 2005, key economic assumptions and the sensitivity of
      the
      current fair value of the residual interest based on projected cash flows to
      immediate adverse changes in those assumptions are as follows:





**December
                31,****2006**
            
            
            **2005****(dollars
                in thousands)****Fair
                value of retained interest**
            
            **$**
            **2,039**
            
            
            **$**
            **3,570****Weighted
                average life (in years) - securities**
            
            
            **0.55**
            
            
            
            **0.56****Weighted
                average life (in years) - residual interest**
            
            
            **2.74**
            
            
            
            **2.92****Weighted
                average annual prepayment speed**
            
            
            **40.0**
            **%**
            
            
            **40.0**
            **%**Impact
                of 10% adverse change
            
            $
            (6
            )
            
            $
            (22
            )Impact
                of 25% adverse change
            
            $
            (10
            )
            
            $
            (34
            )**Weighted
                average annual discount rate**
            
            
            **13.0**
            **%**
            
            
            **13.0**
            **%**Impact
                of 10% adverse change
            
            $
            (65
            )
            
            $
            (117
            )Impact
                of 25% adverse change
            
            $
            (156
            )
            
            $
            (284
            )**Weighted
                average lifetime credit losses**
            
            
            **20.2**
            **%**
            
            
            **14.3**
            **%**Impact
                of 10% adverse change
            
            $
            (86
            )
            
            $
            (79
            )Impact
                of 25% adverse change
            
            $
            (224
            )
            
            $
            (211
            )





These
      sensitivities are hypothetical and should be used with caution. As the figures
      indicate, changes in the fair value of the residual interest are based on a
      variation in assumptions and generally cannot be extrapolated because the
      relationship of the change in assumption to the change in fair value may not
      be
      linear. Also, in the above table, the effect of a variation in a particular
      assumption on the fair value of the residual interest is calculated without
      changing any other assumption; in reality, changes in one factor may result
      in
      changes in another (for example, increases in market interest rates may result
      in lower prepayments but increased credit losses), which might magnify or
      counteract the sensitivities, and depending on the severity of such changes,
      the
      results of operations may be materially affected.




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**NOTE
      11 — BENEFIT PLANS**





*Salary
      Savings Plan* .
      The
      Company has a salary savings plan (the “Savings Plan”) that qualifies as a
      deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
      Under the Savings Plan, participating employees may contribute a portion of
      their pretax earnings, not to exceed the annual limits established by the
      Internal Revenue Service. We match 50% of each employee’s salary deferral, up to
      a maximum 6% of the employee’s salary. Employees vest in employer contributions
      and the earnings thereon over a five-year period. Matching contributions to
      the
      Savings Plan were $478,000, $452,000, and $458,000, in 2006, 2005 and 2004,
      respectively.





*Nonqualified
      Deferred Compensation Plans* .
      The
      Company has deferred compensation plans designed to provide additional
      retirement benefits for certain officers and key employees who cannot take
      full
      advantage of the Savings Plan. The costs associated with these deferred
      compensation plans were approximately $36,000 in 2006, 2005 and
      2004.





*Supplemental
      Executive Retirement Plan* .
      The
      Company has adopted a Supplemental Executive Retirement Plan (the “SERP”) for
      certain officers and key employees which provides for participants to be awarded
      shares of common stock of the Company on a tax deferred basis from the
      Recognition and Retention Plan (“RRP”) previously approved by the shareholders.
      Such shares vest in three-year cycles or earlier at the discretion of the
      Compensation Committee of the Board of Directors, and once vested, may be
      distributed to participants upon a change in control or the participant’s death,
      disability, retirement date or date of termination of employment. During 1998,
      the Company issued shares of common stock, representing the remaining number
      of
      unissued shares authorized to be awarded under the RRP, to a Rabbi Trust managed
      by a third-party financial institution. As of December 31, 2005, all of the
      shares granted under the RRP had been awarded and were fully vested. For 2005
      and 2004, 15,055 and 23,198 shares, respectively, were allocated to designated
      SERP accounts for the future benefit of certain Company executives. The Company
      recognized none, $106,000, and $144,000 of compensation expense from the vesting
      of allocated SERP/RRP shares in 2006, 2005 and 2004, respectively.





*Stock
      Plans* .
      The
      Company adopted an employee stock incentive plan and stock option plan for
      nonemployee directors (collectively, “the Stock Plan”) which together provide
      for the award of up to 1,631,000 shares of common stock to officers, directors
      and employees as compensation for future services. An amendment to the Stock
      Plan increasing the number of shares authorized for award under the Stock Plan
      by 320,000 shares and 311,000 shares, respectively, were approved by the
      Company’s shareholders on July 27, 2005 and June 29, 2001. As of December 31,
      2006, the Company has granted an aggregate of 1,897,750 options under the Stock
      Plan, of which 945,672 have been exercised and 406,094 have been forfeited.
      The
      exercise price per share of the options granted ranges from $10.00 to $58.00
      per
      share and generally vest 33-1/3% per year, beginning with the first anniversary
      of the date of each individual grant.





The
      number of options and weighted-average exercise prices of options for each
      of
      the following groups of options, for the periods indicated, are as
      follows:





**Number
                of Options**
            
            **Weighted-Average**
              **Exercise
                Price****2006**
            
            **2005**
            
            **2006**
            
            **2005**Options
                outstanding at the beginning of the year
            
            
            630,818
            
            
            592,339
            
            $
            35.61
            
            $
            19.41Options
                granted during the year
            
            
            7,250
            
            
            322,250
            
            $
            51.10
            
            $
            49.53Options
                exercised during the year
            
            
            (86,674
            )
            
            (275,104
            )
            $
            35.36
            
            $
            16.90Options
                forfeited during the year
            
            
            (5,410
            )
            
            (8,667
            )
            $
            48.11
            
            $
            39.94Options
                outstanding at the end of the year
            
            
            545,984
            
            
            630,818
            
            $
            35.73
            
            $
            35.61Options
                exercisable at the end of the year
            
            
            538,484
            
            
            617,318
            
            $
            35.50
            
            $
            35.30





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**NOTE
      12 — INCOME TAXES**





Deferred
      income taxes reflect the net effect of temporary differences between the
      carrying amounts of assets and liabilities for financial reporting purposes
      and
      the amounts used for income tax purposes.





Significant
      components of our deferred tax assets and liabilities are as
      follows:





**December
                31,****2006**
            
            **2005****(in
                thousands)**Components
                of the deferred tax asset:Allowance
                for loan losses
            
            $
            18,933
            
            $
            17,995Accrued
                expenses
            
            
            3,462
            
            
            2,857State
                income taxes
            
            
            1,314
            
            
            1,061Unrealized
                loss on investment securities available-for-sale
            
            
            —
            
            
            255Other
            
            
            939
            
            
            904Total
                deferred tax assets
            
            
            24,648
            
            
            23,072Components
                of the deferred tax liability:Deferred
                loan origination costs
            
            
            9,167
            
            
            7,445FHLB
                stock dividends
            
            
            3,945
            
            
            2,910Unrealized
                gain on investment securities available-for-sale
            
            
            23
            
            
            —Total
                deferred tax liabilities
            
            
            13,135
            
            
            10,355Net
                deferred tax asset
            
            $
            11,513
            
            $
            12,717





The
      deferred tax asset is considered fully realizable, as when the temporary
      differences associated with the deferred tax asset are recognized for income
      tax
      purposes, those deductions are expected to be fully offset, either by carryback
      against previously taxed income or by reducing future taxable income.
      Accordingly, we have not established a valuation allowance on the deferred
      tax
      asset.





A
      summary
      of the provision for income taxes follows:





**Years
                Ended December 31,****2006**
            
            **2005**
            
            **2004****(in
                thousands)**Current
                provision:Federal
            
            $
            13,678
            
            $
            14,709
            
            $
            13,945State
            
            
            3,889
            
            
            4,713
            
            
            4,80517,567
            
            
            19,422
            
            
            18,750Deferred
                provision (benefit):Federal
            
            
            540
            
            
            (1,448
            )
            
            902State
            
            
            386
            
            
            (492
            )
            
            296926
            
            
            (1,940
            )
            
            1,198$
            18,493
            
            $
            17,482
            
            $
            19,948





A
      reconciliation of the federal statutory income tax rate to the effective income
      tax rate is as follows:




**Years
                  Ended December 31,****2006**
              
              **2005**
              
              **2004**Federal
                  statutory income tax rate
              
              
              35.0
              %
              
              35.0
              %
              
              35.0
              %State
                  income tax, net of federal income tax benefit
              
              
              7.0
              %
              
              7.0
              %
              
              7.0
              %State
                  income tax credit and other benefits
              
              
              (1.3
              )%
              
              —
              
              
              (2.6
              )%Effective
                  income tax rate
              
              
              40.7
              %
              
              42.0
              %
              
              39.4
              %






The
      income tax provision (benefit) component of accumulated other comprehensive
      income was $278,000, ($309,000), and ($57,000) for the years ended December
      31,
      2006, 2005 and 2004, respectively. During 2006, 2005 and 2004, the Company
      recognized a $627,000, $4.0 million and $3.3 million income tax benefit related
      to the exercise of employee stock options. The benefit was recorded in
      contributed capital within the consolidated balance sheets.




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**NOTE
      13 — FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK**





We
      are a
      party to financial instruments with off-balance-sheet risk in the normal course
      of business to meet the financing needs of our customers. These financial
      instruments primarily consist of commitments to extend credit. These instruments
      may involve, to varying degrees, elements of credit and interest rate risk
      in
      excess of the amount recognized in the balance sheet. The contractual amounts
      of
      those instruments reflect the extent of involvement we have in particular
      classes of financial instruments.





We
      have
      exposure to credit loss in the event of nonperformance by the other party to
      the
      financial instrument for commitments to extend credit. This exposure is
      represented by the contractual amount of those instruments and the Company
      uses
      the same lending policies for these instruments as it does for the loan
      portfolio. We had outstanding unfunded loan commitments, consisting primarily
      of
      the unfunded portion of construction and entertainment finance loans, of
      approximately $256.7 million and $252.5 million at December 31, 2006 and 2005,
      respectively.





Unfunded
      commitments under commercial lines of credit, revolving credit lines and
      overdraft protection agreements are commitments for possible extensions of
      future extensions of credit to existing customers. These lines of credit are
      typically uncollateralized and usually do not contain a specific maturity date
      and often are not drawn upon to the total extent to which the Company is
      committed. We had outstanding commercial lines of credit totaling $1.1 million
      and $0.9 million at December 31, 2006 and 2005, respectively.





**NOTE
      14 — COMMITMENTS AND CONTINGENCIES**





**Commitments**





We
      lease
      office facilities under noncancelable operating leases. Estimated future minimum
      lease payments required under leases with initial or remaining noncancelable
      terms in excess of one year at December 31, 2006 are as follows:





**(in
                thousands)**2007
            
            $
            3,6402008
            
            
            3,2282009
            
            
            2,1542010
            
            
            1,5132011
            
            
            1,354Thereafter
            
            
            1,153Sub-Lease
                income
            
            
            (98
            )$
            12,944





Certain
      leases contain rental escalation clauses based on increases in the consumer
      price index, and renewal options of up to ten years, which may be exercised
      by
      the Company. We incurred rent expense of $4.5 million, $4.2 million, and $3.6
      million in 2006, 2005 and 2004, respectively.





**Contingencies**





We
      are
      subject to various pending legal actions which arise in the normal course of
      business. We maintain reserves for losses from legal actions which are both
      probable and estimable. Although the amount of the ultimate exposure, if any,
      cannot be determined at this time, in management’s opinion, based upon advice of
      counsel, the disposition of claims currently pending are not expected to have
      a
      material adverse effect on our financial condition or results of
      operations.




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**NOTE
      15 — REGULATORY REQUIREMENTS**





The
      Company, the Bank’s holding company, is subject to supervision by the Federal
      Reserve Board (“FRB”). The Bank is subject to supervision and regulation by the
      FDIC and the Department of Financial Institutions (“DFI”) of the State of
      California under the provisions of the California Banking Law. These provisions
      authorize the Bank’s issuance of deposits, place limits on the size of loans the
      Bank can make, and specify the maintenance of minimum liquidity
      levels.





The
      Company and the Bank are also subject to various capital requirements
      administered by the FRB and FDIC, respectively. The FRB and the FDIC have
      substantially similar risk-based capital ratio and leverage ratio guidelines
      for
      banking organizations. Failure to meet minimum capital requirements can initiate
      certain mandatory and possibly additional discretionary action by regulators
      that, if undertaken, could have a direct material effect on the Company’s
      consolidated financial statements and the Bank’s operations. Under the
      applicable capital adequacy guidelines and the regulatory framework for prompt
      corrective action, the Company and the Bank must meet specific capital
      guidelines that involve quantitative measures of the Company’s and the Bank’s
      assets, liabilities and certain off-balance-sheet items as calculated under
      regulatory accounting practices. The Company’s and the Bank’s capital amounts
      and classification are also subject to qualitative judgments by the regulators
      about components, risk weightings and other factors.





Quantitative
      measures established by regulation to ensure capital adequacy require the
      Company and the Bank to maintain minimum amounts and ratios (set forth in the
      following table) of Total and Tier 1 capital to risk-weighted assets, and of
      Tier 1 capital to average total assets (“Leverage Ratio”). Management believes,
      as of December 31, 2006 and 2005, that the Company and the Bank meet all
      applicable capital adequacy requirements.





On
      March
      1, 2005, the FRB adopted a final rule that allows the continued inclusion of
      trust preferred securities in the tier 1 capital of bank holding companies.
      The
      final rule limits restricted core capital elements (which include trust
      preferred securities) to 25 percent of all core capital elements, net of
      goodwill less any associated deferred tax liability. Amounts of restricted
      core
      capital elements in excess of these limits generally may be included in tier
      2
      capital. The final rule provides a five year transition period, ending March
      31,
      2009, for application of the quantitative limits.





As
      of
      December 31, 2006, the most recent notification from the FDIC categorized the
      Bank as “well capitalized” under the applicable regulatory framework. Similarly,
      the Company’s capital levels exceeded the levels necessary to be considered
“well capitalized”. To be categorized as “well capitalized”, the Company and the
      Bank must maintain minimum Total Risk-Based and Tier 1 Risk-Based Ratios, and
      the Bank must also maintain a minimum Tier 1 Leverage Ratio as set forth in
      the
      following table. There are no conditions or events since that notification
      that
      management believes have changed the Company’s and the Bank’s category.





ITLA
      Capital and the Bank’s actual regulatory capital amounts and ratios are
      presented in the following table:





**Actual**
            
            
            **Minimum
                Requirement**
              **for
                Capital Adequacy**
              **Purposes**
            
            
            **Capital
                Required**
              **to
                Maintain**
              **“Well
                Capitalized”**
              **Designation****Amount**
            
            **Ratio**
            
            
            **Amount**
            
            **Ratio**
            
            
            **Amount**
            
            **Ratio****(dollars
                in thousands)****As
                of December****31,
                2006**Total
                capital (to risk-weighted assets)ITLA
                Capital
            
            $
            337,868
            
            
            11.9
            %
            
            $
            227,517
            
            
            8.0
            %
            
            $
            284,396
            
            
            10.0
            %Imperial
                Capital Bank
            
            $
            325,500
            
            
            11.5
            %
            
            $
            226,322
            
            
            8.0
            %
            
            $
            282,903
            
            
            10.0
            %Tier
                I capital (to risk-weighted assets)ITLA
                Capital
            
            $
            290,912
            
            
            10.2
            %
            
            $
            113,759
            
            
            4.0
            %
            
            $
            170,639
            
            
            6.0
            %Imperial
                Capital Bank
            
            $
            290,013
            
            
            10.3
            %
            
            $
            113,162
            
            
            4.0
            %
            
            $
            169,743
            
            
            6.0
            %Tier
                I capital (to average total assets)ITLA
                Capital
            
            $
            290,912
            
            
            9.0
            %
            
            $
            128,696
            
            
            4.0
            %
            
            $
            160,870
            
            
            5.0
            %Imperial
                Capital Bank
            
            $
            290,013
            
            
            9.1
            %
            
            $
            127,974
            
            
            4.0
            %
            
            $
            159,968
            
            
            5.0
            %**As
                of December****31,
                2005**Total
                capital (to risk-weighted assets)ITLA
                Capital
            
            $
            316,421
            
            
            13.0
            %
            
            $
            195,364
            
            
            8.0
            %
            
            $
            244,205
            
            
            10.0
            %Imperial
                Capital Bank
            
            $
            296,252
            
            
            12.2
            %
            
            $
            193,964
            
            
            8.0
            %
            
            $
            242,455
            
            
            10.0
            %Tier
                I capital (to risk-weighted assets)ITLA
                Capital
            
            $
            268,969
            
            
            11.0
            %
            
            $
            97,683
            
            
            4.0
            %
            
            $
            146,525
            
            
            6.0
            %Imperial
                Capital Bank
            
            $
            265,787
            
            
            11.0
            %
            
            $
            96,983
            
            
            4.0
            %
            
            $
            145,475
            
            
            6.0
            %Tier
                I capital (to average total assets)ITLA
                Capital
            
            $
            268,969
            
            
            9.1
            %
            
            $
            118,458
            
            
            4.0
            %
            
            $
            148,073
            
            
            5.0
            %Imperial
                Capital Bank
            
            $
            265,787
            
            
            9.1
            %
            
            $
            116,769
            
            
            4.0
            %
            
            $
            145,961
            
            
            5.0
            %





Additionally,
      Federal and state banking regulations place certain restrictions on dividends
      paid and loans or advances made by the Bank to the Company. The total amount
      of
      dividends which may be paid at any date is generally limited to the retained
      earnings of the Bank, and loans or advances are limited to 10 percent of the
      Bank's capital stock and surplus on a secured basis.





At
      December 31, 2006, the Bank's retained earnings available for the payment of
      dividends was $140.1 million. Accordingly, $152.9 million of the Company's
      equity in the net assets of the Bank was restricted at December 31, 2006.
 Funds available for loans or advances by the Bank to the Company amounted
      to $15.3 million. In addition, dividends paid by the Bank to the Company would
      be prohibited if the effect thereof would cause the Bank's capital to be reduced
      below applicable minimum capital requirements.




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**NOTE
      16—EARNINGS PER SHARE**





The
      following is a reconciliation of the amounts used in the calculation of basic
      earnings per share and diluted earnings per share.





**Net
                Income**
            
            **Weighted-**
              **Average**
              **Shares**
              **Outstanding**
            
            **Per
                Share**
              **Amount****(in
                thousands, except per share data)****Year
                ended December 31, 2006**
              Basic
                earnings per share
            
            $
            26,889
            
            
            5,562
            
            $
            4.83Dilutive
                effect of stock options
            
            
            —
            
            
            150
            
            
            (0.12
            )Diluted
                earnings per share
            
            $
            26,889
            
            
            5,712
            
            $
            4.71**Year
                ended December 31, 2005**
              Basic
                earnings per share
            
            $
            24,063
            
            
            5,749
            
            $
            4.19Dilutive
                effect of stock options
            
            
            —
            
            
            214
            
            
            (0.15
            )Diluted
                earnings per share
            
            $
            24,063
            
            
            5,963
            
            $
            4.04**Year
                ended December 31, 2004**
              Basic
                earnings per share
            
            $
            30,625
            
            
            6,077
            
            $
            5.04Dilutive
                effect of stock options
            
            
            —
            
            
            377
            
            
            (0.29
            )Diluted
                earnings per share
            
            $
            30,625
            
            
            6,454
            
            $
            4.75








**NOTE
      17—DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS**





Fair
      value estimates are based on judgments regarding credit risk, expectations
      of
      future economic conditions, normal cost of administration of these instruments
      and other risk characteristics, including interest rate risk and prepayment
      risk. These estimates are subjective in nature, involve uncertainties and
      matters of significant judgment and therefore cannot be determined with
      precision. Changes in assumptions could significantly affect the estimates.
      The
      fair value estimates presented do not include the value of anticipated future
      business and the value of assets and liabilities that are not considered
      financial instruments.





We
      use
      the following methods and assumptions to estimate the fair value of each class
      of financial instruments for which it is practicable to estimate
      value:





*Cash
      and Cash Equivalents —* The
      carrying values reported in the balance sheet approximate fair values due to
      the
      short-term nature of the assets.





*Investment
      Securities —* Fair
      values are based on bid prices and quotations published and/or received from
      established securities dealers, except for the value of the residual interest
      which is valued using present value of estimated future cash flows.





*Stock
      in Federal Home Loan Bank —* The
      carrying value approximates fair value based on the redemption provisions of
      the
      FHLB.





*Loans
      —* The
      fair
      value is estimated using the present value of future cash flows, discounted
      using the current rate at which similar loans would be made to borrowers with
      similar credit ratings and for the same maturities and giving consideration
      to
      estimated prepayment risk and credit risk.





*Accrued
      Interest Receivable —* The
      carrying values reported in the balance sheet approximate the fair values due
      to
      the short-term nature of the asset.





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*Deposit
      Accounts —* The
      fair
      value of demand deposit, money market and passbook accounts is estimated to
      be
      the amount payable on demand due to the short-term nature of these deposits.
      The
      fair values for time certificates, both over and under $100,000, are estimated
      by discounting the expected cash flows at current market rates over expected
      maturities.





*Federal
      Home Loan Bank Advances and Other Borrowings* *—* ** The
      fair
      value is estimated by discounting the expected cash flows at current market
      rates over contractual maturities.





*Junior
      Subordinated Debentures*  *—* The fair
      value is estimated using the present value of future cash flows, discounted
      using the current rate at which a similar debenture would be issued.





The
      carrying amounts and estimated fair values of our financial instruments are
      as
      follows:





**December
                31,****2006**
            
            **2005****Cost
                or**
              **Carrying**
              **Amount**
            
            **Estimated**
              **Fair
                Value**
            
            **Cost
                or**
              **Carrying**
              **Amount**
            
            **Estimated**
              **Fair
                Value****(in
                thousands)**Financial
                assets:Cash
                and cash equivalents
            
            $
            30,448
            
            $
            30,448
            
            $
            93,747
            
            $
            93,747Investment
                securities available-for-sale
            
            
            99,527
            
            
            99,527
            
            
            92,563
            
            
            92,563Investment
                securities held-to-maturity
            
            
            193,512
            
            
            190,475
            
            
            233,880
            
            
            229,025Stock
                in Federal Home Loan Bank
            
            
            48,984
            
            
            48,984
            
            
            43,802
            
            
            43,802Loans,
                net
            
            
            2,973,368
            
            
            3,008,621
            
            
            2,523,480
            
            
            2,530,654Accrued
                interest receivable
            
            
            20,753
            
            
            20,753
            
            
            16,287
            
            
            16,287Financial
                liabilities:Deposit
                accounts
            
            $
            2,059,405
            
            $
            2,061,922
            
            $
            1,735,428
            
            $
            1,733,205Federal
                Home Loan Bank advances and other borrowings
            
            
            1,010,000
            
            
            998,219
            
            
            992,557
            
            
            985,682Junior
                subordinated debentures
            
            
            86,600
            
            
            90,425
            
            
            86,600
            
            
            92,788





**NOTE
      18—BUSINESS SEGMENT INFORMATION**





SFAS
      No.
      131, “Disclosures About Segments of an Enterprise and Related Information”
requires disclosure of segment information in a manner consistent with the
      “management approach”. The management approach is based on the way the chief
      operating decision-maker organizes segments within a company for making
      operating decisions and assessing performance.





The
      main
      factors used to identify operating segments were the specific product and
      business lines of the various operating segments of the Company. Operating
      segments are organized separately by product and service offered. We have
      identified one operating segment that meets the criteria of being a reportable
      segment in accordance with the provisions of SFAS No. 131. This reportable
      segment is the Company’s lending operations, which by its legal form, is
      identified as operations of the Bank and Imperial Capital REIT. This segment
      derives the majority of its revenue from interest received on loans originated
      and purchased. Other operating segments of the Company that did not meet the
      criteria of being a reportable segment in accordance with SFAS No. 131 have
      been
      aggregated and reported as “All Other”. Transactions from all of our operating
      segments occur primarily in the United States. The Company has no transactions
      with a single external customer that exceeds ten percent of the Company’s
      consolidated revenues.





Transactions
      between the reportable segment of the Company and its other operating segments
      are made at terms which approximate arm’s-length transactions and in accordance
      with GAAP. There is no significant difference between the measurement of the
      reportable segment’s assets and profits and losses disclosed below and the
      measurement of assets and profits and losses in the consolidated balance sheets
      and statements of income. Accounting allocations are made in the same manner
      for
      all operating segments.








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          of Contents**





Required
      reported segment information for 2006, 2005 and 2004 is detailed
      below:





**Lending********Operations**
            
            **All
                Other**
            
            **Eliminations**
            
            **Consolidated****(in
                thousands)****As
                of and for the Year Ended****December
                31, 2006**
              Revenues
                from external customers
            
            $
            228,057
            
            $
            1,216
            
            $
            —
            
            $
            229,273Total
                interest income
            
            
            225,376
            
            
            1,125
            
            
            —
            
            
            226,501Total
                interest expense
            
            
            123,878
            
            
            8,197
            
            
            —
            
            
            132,075Depreciation
                and amortization expense
            
            
            2,305
            
            
            393
            
            
            —
            
            
            2,698Provision
                for income taxes
            
            
            22,513
            
            
            (4,020
            )
            
            —
            
            
            18,493Capital
                expenditures
            
            
            2,286
            
            
            325
            
            
            —
            
            
            2,611Total
                assets
            
            
            3,396,079
            
            
            319,554
            
            
            (300,123
            )
            
            3,415,510Income
                (loss) before provision for income taxes
            
            
            55,410
            
            
            (10,028
            )
            
            —
            
            
            45,382**As
                of and for the Year Ended****December
                31, 2005**
              Revenues
                from external customers
            
            $
            182,580
            
            $
            2,152
            
            $
            —
            
            $
            184,732Total
                interest income
            
            
            175,855
            
            
            2,303
            
            
            —
            
            
            178,158Total
                interest expense
            
            
            79,315
            
            
            7,171
            
            
            —
            
            
            86,486Depreciation
                and amortization expense
            
            
            2,290
            
            
            392
            
            
            —
            
            
            2,682Provision
                for income taxes
            
            
            20,113
            
            
            (2,631
            )
            
            —
            
            
            17,482Capital
                expenditures
            
            
            2,232
            
            
            523
            
            
            —
            
            
            2,755Total
                assets
            
            
            3,029,118
            
            
            302,351
            
            
            (280,273
            )
            
            3,051,196Income
                (loss) before provision for income taxes
            
            
            49,362
            
            
            (7,817
            )
            
            —
            
            
            41,545**As
                of and for the Year Ended****December
                31, 2004**
              Revenues
                from external customers
            
            $
            139,154
            
            $
            308
            
            $
            —
            
            $
            139,462Total
                interest income
            
            
            124,788
            
            
            1,608
            
            
            (1,442
            )
            
            124,954Total
                interest expense
            
            
            36,528
            
            
            6,332
            
            
            (1,442
            )
            
            41,418Depreciation
                and amortization expense
            
            
            1,723
            
            
            362
            
            
            —
            
            
            2,085Provision
                for income taxes
            
            
            22,836
            
            
            (2,888
            )
            
            —
            
            
            19,948Capital
                expenditures
            
            
            2,752
            
            
            242
            
            
            —
            
            
            2,994Total
                assets
            
            
            2,253,190
            
            
            327,763
            
            
            (262,882
            )
            
            2,318,071Income
                (loss) before provision for income taxes
            
            
            59,537
            
            
            (8,964
            )
            
            —
            
            
            50,573








**NOTE
      19—PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS**





The
      parent company only financial statements of ITLA Capital are as follows:





**Condensed
      Balance Sheets**





**December
                31,****2006**
            
            **2005****(in
                thousands)****Assets**
              Cash
                and cash equivalents
            
            $
            1,401
            
            $
            7,874Investment
                securities available-for-sale, at fair value
            
            
            2,216
            
            
            3,734Investments
                in wholly-owned subsidiaries:Imperial
                Capital Bank
            
            
            292,990
            
            
            268,264Imperial
                Capital Real Estate Investment Trust
            
            
            1,504
            
            
            3,479Other
                subsidiaries
            
            
            177
            
            
            177Investments
                in unconsolidated subsidiaries
            
            
            2,600
            
            
            2,600Other
                assets
            
            
            18,393
            
            
            15,952Total
                assets
            
            $
            319,281
            
            $
            302,080**Liabilities
                and Shareholders’ Equity**
              Junior
                subordinated debentures
            
            $
            86,600
            
            $
            86,600Other
                liabilities
            
            
            11,344
            
            
            10,999Shareholders’
                equity
            
            
            221,337
            
            
            204,481Total
                liabilities and shareholders’ equity
            
            $
            319,281
            
            $
            302,080








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          68
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          of Contents**





**Condensed
      Statements of Income**





**Years
                Ended December 31,****2006**
            
            **2005**
            
            **2004****(in
                thousands)**Interest
                income
            
            $
            1,125
            
            $
            2,303
            
            $
            1,608Interest
                expense
            
            
            8,197
            
            
            7,171
            
            
            6,332Net
                interest expense
            
            
            (7,072
            )
            
            (4,868
            )
            
            (4,724
            )Provision
                for loan losses
            
            
            (4
            )
            
            (64
            )
            
            —Non-interest
                expense:General
                and administrative expense
            
            
            3,052
            
            
            2,809
            
            
            2,883Other
            
            
            (91
            )
            
            140
            
            
            1,300Total
                non-interest expense
            
            
            2,961
            
            
            2,949
            
            
            4,183Loss
                before income tax benefit and equity in net income of
                subsidiaries
            
            
            (10,029
            )
            
            (7,753
            )
            
            (8,907
            )Income
                tax benefit
            
            
            (4,021
            )
            
            (2,609
            )
            
            (2,866
            )Loss
                before equity in net income of subsidiaries
            
            
            (6,008
            )
            
            (5,144
            )
            
            (6,041
            )Equity
                in net income of subsidiaries
            
            
            32,897
            
            
            29,207
            
            
            36,666Net
                income
            
            $
            26,889
            
            $
            24,063
            
            $
            30,625





**Condensed
      Statements of Cash Flows**




**Years
                  Ended December 31,****2006**
              
              **2005**
              
              **2004****(in
                  thousands)**Cash
                  Flows From Operating Activities:Net
                  income
              
              $
              26,889
              
              $
              24,063
              
              $
              30,625Adjustments
                  to net income:Equity
                  in undistributed net income of subsidiaries
              
              
              (32,897
              )
              
              (29,207
              )
              
              (36,666
              )Provision
                  for loan losses
              
              
              (4
              )
              
              (64
              )
              
              —Other,
                  net
              
              
              29
              
              
              3,465
              
              
              3,099(Increase)
                  decrease in other assets
              
              
              (1,506
              )
              
              (335
              )
              
              2,127(Decrease)
                  increase in liabilities
              
              
              (445
              )
              
              524
              
              
              3,440Net
                  cash (used in) provided by operating activities
              
              
              (7,934
              )
              
              (1,554
              )
              
              2,625Cash
                  Flows From Investing Activities:Capital
                  distribution received from Imperial Capital REIT
              
              
              1,857
              
              
              11,065
              
              
              —Dividends
                  received from Imperial Capital Bank
              
              
              8,500
              
              
              3,000
              
              
              28,000Dividends
                  received from Imperial Capital REIT
              
              
              251
              
              
              3,756
              
              
              1,839Other,
                  net
              
              
              906
              
              
              1,376
              
              
              316Net
                  cash provided by investing activities
              
              
              11,514
              
              
              19,197
              
              
              30,155Cash
                  Flows From Financing Activities:Proceeds
                  from exercise of employee stock options
              
              
              3,692
              
              
              4,650
              
              
              4,159Cash
                  paid to acquire treasury stock
              
              
              (11,374
              )
              
              (22,625
              )
              
              (30,346
              )Cash
                  dividends paid
              
              
              (2,371
              )
              
              —
              
              
              —Net
                  cash used in financing activities
              
              
              (10,053
              )
              
              (17,975
              )
              
              (26,187
              )Net
                  (decrease) increase in cash and cash equivalents
              
              
              (6,473
              )
              
              (332
              )
              
              6,593Cash
                  and cash equivalents at beginning of period
              
              
              7,874
              
              
              8,206
              
              
              1,613Cash
                  and cash equivalents at end of period
              
              $
              1,401
              
              $
              7,874
              
              $
              8,206








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          69
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          of Contents**





**Item
      9. Changes In and Disagreements With Accountants on
      Accounting and**  **Financial
      Disclosure**





None.





**Item
      9A. Control and Procedures**





**Evaluation
      of Disclosure Controls and Procedures**





An
      evaluation of the Company’s disclosure controls and procedures (as defined in
      Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Act”)) was
      carried out as of December 31, 2006 under the supervision and with the
      participation of the Company’s Chief Executive Officer, Chief Financial Officer
      and several other members of the Company’s senior management. The Company’s
      Chief Executive Officer and Chief Financial Officer concluded that, as of
      December 31, 2006, the Company’s disclosure controls and procedures were
      effective in ensuring that the information required to be disclosed by the
      Company in the reports it files or submits under the Act is (i) accumulated
      and
      communicated to the Company’s management (including the Chief Executive Officer
      and Chief Financial Officer) to allow timely decisions regarding required
      disclosure, and (ii) recorded, processed, summarized and reported within the
      time periods specified in the SEC’s rules and forms.





The
      Company does not expect that its disclosure controls and procedures and internal
      control over financial reporting will prevent all error and all fraud. A control
      procedure, no matter how well conceived and operated, can provide only
      reasonable, not absolute, assurance that the objectives of the control procedure
      are met. Because of the inherent limitations in all control procedures, no
      evaluation of controls can provide absolute assurance that all control issues
      and instances of fraud, if any, within the Company have been detected. These
      inherent limitations include the realities that judgments in decision-making
      can
      be faulty, and that breakdowns can occur because of simple error or mistake.
      Additionally, controls can be circumvented by the individual acts of some
      persons, by collusion of two or more people, or by management override of the
      control. The design of any control procedure also is based in part upon certain
      assumptions about the likelihood of future events, and there can be no assurance
      that any design will succeed in achieving its stated goals under all potential
      future conditions; over time, controls may become inadequate because of changes
      in conditions, or the degree of compliance with the policies or procedures
      may
      deteriorate. Because of the inherent limitations in a cost-effective control
      procedure, misstatements due to error or fraud may occur and not be
      detected.





The
      annual report of management on the effectiveness of our internal control over
      financial reporting and the attestation report thereon issued by our independent
      registered public accounting firm are set forth under “Management’s Report on
      Internal Control Over Financial Reporting” and “Report of Independent Registered
      Public Accounting Firm” under “Item 8. Financial Statements and Supplementary
      Data.”





**Changes
      in Internal Control Over Financial Reporting**





During
      the quarter ended December 31, 2006, no changes occurred in the Company’s
      internal control over financial reporting that have materially affected, or
      are
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.





**Item
      9B. Other Information**





None.








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          70
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          of Contents**





**PART
      III**





**Item
      10. Directors, Executive Officers and Corporate
      Governance**





**Executive
      Officers and Directors of the Registrant**





The
      executive officers of the Registrant are identified below.





**Name**
            **Age**
            **Position**George
                W. Haligowski
            52
            Chairman
                of the Board, President and Chief Executive Officer of ITLA Capital
                and
                the BankNorval
                L. Bruce
            65
            Vice
                Chairman of the Board and Chief Credit Officer of ITLA Capital and
                the
                BankTimothy
                M. Doyle
            50
            Executive
                Managing Director and Chief Financial Officer of ITLA Capital and
                the
                BankLyle
                C. Lodwick
            52
            Executive
                Managing Director and Chief Operating Officer of ITLA Capital and
                the
                BankPhillip
                E. Lombardi
            50
            Senior
                Managing Director and Chief of Lending Operations of ITLA Capital
                and the
                Bank





*George
      W. Haligowski* has
      served as ITLA Capital’s Chairman of the Board, President and Chief Executive
      Officer since inception. He has also served as the Bank’s Chairman of the Board
      and Chief Executive Officer since 1992, and was the Bank’s President from 1992
      to October 1997. In 2000 he was again appointed as President of the Bank. From
      1990 to 1992, he served as President, Chief Executive Officer and Principal
      of
      Halivest International, Ltd., an international finance and asset management
      company. He was previously employed as a Vice President by Shearson Lehman
      Hutton (1988 to 1990) and Prudential-Bache Securities (1983 to 1988), and by
      Avco Financial Services as Regional Director of its Japanese branch operations
      (1976 to 1981), as Training Coordinator for Avco Thrift and Loan (1976) and
      as a
      Branch Manager (1974 to 1976). Mr. Haligowski’s post secondary education
      consists of the following programs: He graduated from the Securities Industry
      Institute held at the University of Pennsylvania Wharton School. He also became
      an alumnus of the Harvard Business School by completing the Owners Presidents
      Management Program. He completed the Advanced Management Program at the
      University of Southern California. He received his Masters of Banking diploma
      from L.S.U. Graduate School of Banking. Mr. Haligowski also serves on several
      boards, including Operation Hope, Chairman Emeritus of the Young Presidents
      Organization of San Diego, and is Chairman of the University of California
      San
      Diego Scripps Institute of Oceanography's Advisory Board the Director's
      Cabinet.





*Norval
      L. Bruce* has
      served as the Vice Chairman and Chief Credit Officer for ITLA Capital and the
      Bank since June of 1999. He was previously President and Chief Operating Officer
      of the Bank from October 1997 to June 1999, and previously was the Executive
      Vice President and Chief Credit Officer of the Bank from 1990 to October 1997.
      Mr. Bruce was appointed a director of the Bank and ITLA Capital in January
      1997
      and September 1997, respectively. From 1988 to 1989, he served as Executive
      Vice
      President and Chief Credit Officer of Security Pacific Bank, Nevada. He was
      previously employed by Security Pacific Bank from 1965 to 1988 in a variety
      of
      positions including management positions in which he was responsible for both
      loan origination and credit quality. Mr. Bruce has an Associates of Arts degree
      from Clark College of Vancouver Washington, and attended the University of
      Washington where he studied economics and engineering. He is a graduate of
      the
      Southwestern Graduate School of Banking at Southern Methodist University and
      he
      has completed the Executive Program in Management from the John E. Anderson
      Graduate School of Management at UCLA.





*Timothy
      M. Doyle* has
      served as Executive Managing Director and Chief Financial Officer of ITLA
      Capital and the Bank since August 2005. He was previously Senior Managing
      Director and Chief Financial Officer of ITLA Capital and the Bank from May
      2000
      to August 2005, and prior to that he was Managing Director and Chief
      Administrative Officer of ITLA Capital and the Bank from May 1996 to May 2000.
      Before joining the Bank, he was the Controller and Director of Operations at
      Northeastern Plastics from 1995 to 1996; Assistant Controller of Alpha Wire
      Corporation from 1992 to 1994; and Vice President and Chief Financial Officer
      of
      Halivest International, Ltd. from 1989 to 1991. From 1982 to 1988, he was the
      Corporate Controller of the Shepaug Corporation. Mr. Doyle graduated with a
      Bachelor of Science degree in Accounting from Western New England College,
      and
      has completed the International Business Management Senior Executive Program
      of
      the London Business School.








-
          71
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 **Table
          of Contents**





*Lyle
      C. Lodwick* has
      served as Executive Managing Director and Chief Operating Officer of ITLA
      Capital and the Bank since August 2005. Prior to joining ITLA Capital, Mr.
      Lodwick served as Executive Vice President and Chief Operating Officer of
      Sunwest Bank and, prior to that, he served as Executive Vice President and
      Chief
      Credit Officer at Pacific Crest Capital, Inc. During his tenure at Pacific
      Crest
      Capital, Inc. from 1992 to 2004, he held several senior level positions with
      the
      company. From 1982 to 1985, he was Assistant Regional Credit Manager, Western
      Region, with Commercial Credit Corporation. Mr. Lodwick has a BA from Whittier
      College and an MBA from the University of LaVerne.





*Phillip
      E. Lombardi* has
      served as Senior Managing Director - Chief of Lending Operations of ITLA Capital
      and the Bank since August 2005. Prior to joining ITLA Capital, he was Vice
      President and Manager of the Los Angeles Real Estate Industries lending division
      of Bank of the West (formerly Sanwa Bank of California) from 2001 to 2004.
      He
      was previously Vice President and Relationship Manager for Citicorp Real Estate,
      Inc. and the Commercial Asset Management unit of Citibank, F.S.B. from 1985
      through 2000; and Construction Superintendent and later Marketing Director
      for
      666 Venture, Inc. from 1981 to 1985. Mr. Lombardi has an MBA from the University
      of Chicago with a Specialization in Finance, and a BA from the University of
      Puget Sound.





The
      directors of ITLA Capital, excluding Mr. Haligowski and Mr. Bruce, are
      identified below.





*Preston
      Martin,* age
      83,
      is the former Vice Chairman of the Federal Reserve Board of Governors. Mr.
      Martin previously served as a Senior Advisory Director to the Board. Mr. Martin
      is currently Chairman of the Board of Martin Associates, a San Francisco based
      financial services company. Mr. Martin was Chairman and Chief Executive Officer
      of Seraco Corporation, a Sears Roebuck enterprise, PMI Mortgage Insurance
      Corporation and PMI Mortgage Corporation. Mr. Martin was also Professor of
      Finance and Director of Executive Programs at the University of Southern
      California. Mr. Martin holds a Ph.D. in Monetary Economics from Indiana
      University, as well as an MBA and a BS in Finance from the University of
      Southern California.





*Jeffrey
      L. Lipscomb* ,
      age 53,
      is a Chartered Financial Consultant (ChFC), and an Investment Advisory Associate
      with AXA Advisors and formerly was a Registered Principal and Assistant Manager
      of the San Diego office of Equitable Financial Companies since 1986, handling
      corporate group benefits and personal financial planning. Additionally, he
      is an
      Executive Vice-President of Excelsior Financial Network, LLC, a wealth planning
      management group. Mr. Lipscomb was also with Kidder Peabody from 1983 to 1986.
      Mr. Lipscomb received a Bachelor of Arts Degree in General Psychology from
      the
      University of California, Santa Barbara in 1976.





*Sandor
      X. Mayuga* ,
      age 59,
      is a member of the California State Bar and has been Of Counsel to the law
      firm
      of Keesal, Young & Logan since April 2004. Prior to that, he was a member of
      the law firm of Tisdale & Nicholson, LLP since 1994. He conducted his own
      law practice from 1983 to 1994 and was a partner in the Financial Institutions
      Department of Finley, Kumble, Wagner, Heine, Underberg, Manly & Casey, a New
      York-based national law firm, from 1980 to 1983. Previously, he served as
      Assistant General Counsel of Hunt-Wesson Foods, Inc., a subsidiary of Norton
      Simon, Inc., and was associated with two large regional law firms in Los Angeles
      County. Since 1980, Mr. Mayuga’s practice has focused on the representation of
      financial institutions and other finance-related businesses in corporate,
      transactional and regulatory matters. Mr. Mayuga is a graduate of the University
      of Pennsylvania School of Law (Juris Doctoris, 1974), and the University of
      California, Santa Barbara (A.B., Political Science, with High Honors, 1970).
      While at the University of Pennsylvania, he also studied at The Wharton School
      of Finance and Commerce. He also earned a Certificate in Private International
      Law at Academie du Droit Internationale de la Haye (1975).





*Hirotaka
      Oribe* ,
      age 72,
      is a licensed architect with international experience in real estate development
      and urban planning. Since 1993, Mr. Oribe has served as an advisor to Kajima
      Development Resources, Inc. From 1979 to 1993, Mr. Oribe was Executive Vice
      President, Chief Operating Officer and a Director of Kajima Development
      Corporation, a firm engaged in development and construction of single-family
      and
      multi-family housing, office buildings, retail space and land development.
      Mr.
      Oribe previously held other positions with affiliates of Kajima Corporation
      of
      Japan from 1973 to 1979 and was a practicing architect from 1962 to 1973. Mr.
      Oribe holds a Bachelor and Masters of Engineering from Waseda University in
      Tokyo, and holds a Master of Architecture in Urban Design from Harvard
      University's Graduate School of Design. He is also a licensed architect with
      the
      State of California and the Commonwealth of Massachusetts.





*Robert
      R. Reed* ,
      age 70,
      is retired from Household International where he was employed in various
      positions from 1960 to 1992. Mr. Reed served as Vice President of Household
      Bank
      from 1980 to 1992. Mr. Reed was previously employed in management positions
      with
      Household Financial Corporation from 1962 to 1980. From 1995 to 2000, Mr. Reed
      served as a director of the Santa Ana City Cable Television Review Board.








-
          72
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          of Contents**





**Audit
      Committee Membership**





The
      Audit
      Committee of ITLA Capital’s Board of Directors consists of Directors Martin
      (Chairman), Lipscomb and Reed. The Board of Directors has determined that Mr.
      Martin is an “audit committee financial expert,” as defined in the SEC’s rules,
      and that Mr. Martin is “independent,” as independence is defined for audit
      committee members in the listing standards of the NYSE and NASDAQ Stock
      Market.





**Code
      of Ethics**





We
      have
      adopted a code of ethics that applies to our principal executive officer,
      principal financial officer, principal accounting officer, and persons
      performing similar functions, and to all of our other employees and our
      directors. A copy of our code of ethics is available on our website, located
      at
      www.itlacapital.com.





**Section
      16(a) Beneficial Ownership Reporting Compliance**





Section
      16(a) of the Securities Exchange Act of 1934 requires ITLA Capital’s directors
      and executive officers, and persons who own more than 10% of a registered class
      of our equity securities, to file with the SEC initial reports of ownership
      and
      reports of changes in ownership of common stock and other equity securities
      of
      ITLA Capital. Officers, directors and greater than 10% stockholders are required
      by SEC regulation to furnish ITLA Capital with copies of all Section 16(a)
      forms
      they file.





To
      our
      knowledge, based solely on a review of the copies of such reports furnished
      to
      us and written representations that no other reports were required, during
      the
      fiscal year ended December 31, 2006, all Section 16(a) filing requirements
      applicable to its officers, directors and greater than 10% beneficial owners
      were complied with, except for the inadvertent failure of Mr. Haligowski to
      timely report two transactions (which occurred on the same day) and of each
      of
      Messrs. Bruce, Doyle, Lodwick, Lombardi and Officer Scott A. Wallace to report
      one transaction.





**Item
      11. Executive** **Compensation**





**COMPENSATION
      DISCUSSION AND ANALYSIS**





In
      this
      section, we will give an overview and analysis of our compensation program
      and
      policies, the material compensation decisions we have made under those programs
      and policies, and the material factors that we considered in making those
      decisions. Following this section, under the heading “Additional Information
      Regarding Executive Compensation,” you will find a series of tables containing
      specific information about compensation paid or payable to the following
      individuals, whom we refer to as our named executive officers:




•
            George
                W. Haligowski, Chairman, President and Chief Executive
                Officer•
            Norval
                L. Bruce, Vice Chairman and Chief Credit Officer•
            Timothy
                M. Doyle, Executive Managing Director and Chief Financial
                Officer•
            Lyle
                C. Lodwick, Executive Managing Director and Chief Operating
                Officer•
            Phillip
                E. Lombardi, Senior Managing Director and Chief of Lending
                Operations







The
      discussion below is intended to help you understand the detailed information
      provided in those tables and put that information into context within our
      overall compensation program.








-
          73
          -
 **Table
          of Contents**





**Compensation
      Philosophy and Objectives**





The
      policies of the Compensation Committee of our Board of Directors, or the
      Committee, with respect to the compensation of executive officers, including
      the
      Chief Executive Officer, or CEO, are designed to provide compensation sufficient
      to attract, motivate and retain executives of outstanding ability and potential.
      Overall, we seek to provide total compensation packages that are competitive
      in
      terms of total potential value to our executives, in order to create a
      compensation program that will adequately reward our executives for their roles
      in creating value for our shareholders. We intend to be competitive with other
      similarly situated companies in the banking and financial services
      industries.





Our
      compensation decisions with respect to executive officer salaries, annual
      incentives, and long-term incentive compensation opportunities are influenced
      by
      (a) the executive’s level of responsibility and function within ITLA
      Capital, (b) the performance and profitability of ITLA Capital and the
      individual’s performance, and (c) our assessment of the competitive
      marketplace, including peer companies. Our philosophy is to focus on total
      direct compensation opportunities through a mix of base salary, annual cash
      bonus, and long-term incentives, including equity-based awards in the form
      of
      stock options, other benefits and perquisites, post-termination severance and
      acceleration of stock option vesting for certain named executive officers upon
      termination and/or a change in control. Our other benefits and perquisites
      for
      our named executive officers primarily consist of life and health insurance
      benefits, a qualified 401(k) savings plan, nonqualified deferred compensation
      plans, reimbursement for certain club memberships, use of a Company-owned
      automobile or automobile allowance and payment of preferential interest on
      savings accounts (available to all employees). Mr. Haligowski also receives
      an
      allowance for housing related expenses and chartered air travel. Our philosophy
      is to position the aggregate of these elements at a level that is commensurate
      with our size and sustained performance, and we believe it is important to
      maintain a strong link between executive incentives and the creation of
      shareholder value. The use of these programs enables us to reinforce our pay
      for
      performance philosophy, as well as strengthen our ability to attract and retain
      highly qualified executives. We believe that this combination of programs
      provides an appropriate mix of fixed and variable pay, balances short-term
      operational performance with long-term shareholder value, and encourages
      executive recruitment, motivation and retention.





During
      February 2006, the Committee conducted an overall review of our compensation
      plans and agreements. This review was prompted by the requirement to conform
      our
      compensation plans to Section 409A of the Internal Revenue Code of 1986, as
      amended (the “Code”), and by the fact that all shares of restricted stock under
      our Recognition and Retention Plan (the “RRP”), originally adopted in 1995, were
      allocated as of December 31, 2005. All shares allocated were also fully vested
      as of December 31, 2005. Our supplemental executive retirement plan (the “SERP”)
      provided for allocations of restricted stock issued under the RRP on a tax
      deferred basis through the SERP. Under his employment agreement with us dated
      January 28, 2000 (the “Original Employment Agreement”) and the SERP, Mr.
      Haligowski was entitled to receive annually an allocation under our SERP of
      a
      RRP restricted stock award equal to one-third of his base salary and an
      additional contribution to his SERP account following a change in control equal
      to 3.95 times his base salary. The SERP entitled all other SERP participants
      to
      receive an annual award equal to one-fifth of base salary. In order to provide
      our executive officers, including Mr. Haligowski, with a benefit comparable
      to
      what we had been providing under the SERP prior to the utilization of all
      remaining RRP shares in 2005, and to maximize the tax deductibility of
      compensation payments, we entered into (1) an amendment and restatement of
      Mr.
      Haligowki’s employment agreement, and executed a non-competition and
      non-solicitation agreement, with Mr. Haligowski; (2) executed change in control
      severance agreements with nine executive officers, including: Messrs. Bruce,
      Doyle, Lodwick and Lombardi (in the case of Messsrs. Bruce and Doyle these
      agreements replaced their existing change in control severance agreements with
      us); (3) amended and restated our employer securities and non-employer
      securities non-qualified deferred compensation plans (the “Deferred Compensation
      Plans”) and our SERP primarily to conform those plans with Section 409A of the
      Code; (4) amended and restated our salary continuation plan (the “Salary
      Continuation Plan”) to conform that plan with Section 409A of the Code and to
      make certain other changes described below; and (5) made a clarifying amendment
      to our 2005 Re-Designated, Amended and Restated Employee Stock Incentive Plan
      (the “ESIP”) intended to ensure the deductibility under Section 162(m) of the
      Code of compensation attributable to stock options or stock appreciation rights
      that may be granted under that plan to executive officers.








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Mr.
      Haligowki’s employment agreement was amended and the non-competition and
      non-solicitation agreement entered into so that the change in control benefits
      he would have received under the Original Employment Agreement inclusive of
      the
      SERP change in control benefit described above under the Original Employment
      Agreement, together with the payments to be made to Mr. Haligowski under the
      non-competition and non-solicitation agreement, would not be substantially
      greater or less. The Salary Continuation Plan, which was originally adopted
      by
      us in March 2000 and in which Mr. Haligowski is currently the only participant,
      was amended to eliminate an enhanced change in control benefit, which was to
      provide for an increased monthly payout over ten years instead of over 15 years
      as with other types of termination, and to eliminate the reduction in benefit
      that was to occur if the participant voluntarily terminated his employment
      before retirement age. In addition, a number of other amendments were made
      to
      the Salary Continuation Plan to conform the plan to Section 409A of the Code,
      including changes to definitions, the elimination of our ability to accelerate
      benefits and changes to plan termination provisions. All of these plans and
      agreements are summarized below under “Additional Information Regarding
      Executive Compensation.”





**Determination
      of Appropriate Pay** **Levels**





*In
      General.* Generally, the compensation of our executive officers is currently composed
      of a
      base salary, an annual cash incentive award and equity awards in the form of
      stock options. For each of our named executive officers, the Committee reviews
      and approves all elements of compensation, taking into consideration
      recommendations from Mr. Haligowski (for compensation other than his own),
      and
      the individual contributions of the particular executive. With respect to Mr.
      Haligowski, the Committee utilizes the assistance of an independent compensation
      consultant, Nash and Company, Inc., which provides competitive market data
      every
      year with respect to CEO salary compensation. The comparison group includes
      other banks and thrifts in California with assets ranging from $1.0 to $10.0
      billion. In addition to information provided by Nash and Company, Inc., the
      Committee has historically taken into account information from other sources
      in
      setting the compensation for Mr. Haligowski and other executive officers,
      including information from other independent members of the board of directors
      and publicly available data relating to the compensation practices and policies
      of other companies within our industry. ****





The
      annual executive bonus plan is a discretionary incentive compensation award
      determined by the Committee based on the achievement of the goals set forth
      in
      our annual strategic plan, including but not limited to goals relating to annual
      loan production, asset quality, performance and earnings goals (which may
      fluctuate from year-to-year) and individual performance. In addition, stock
      options are granted to provide the opportunity for long-term compensation based
      upon the performance of our common stock over time.





Base
      Salary. We provide the opportunity for our named executive officers and other
      executives to earn a competitive annual base salary. We provide this opportunity
      to attract and retain an appropriate caliber of talent for the position, and
      to
      provide a base wage that is not subject to our performance risk.





Our
      base
      salary levels reflect a combination of factors, including competitive pay
      levels, the executive’s experience and tenure, our overall annual strategic plan
      for salary increases, the executive’s individual performance, and changes in
      responsibility. We review salary levels annually to recognize these factors.
      We
      do not target base salary at any particular percent of total
      compensation.





Base
      salary increases in 2006 for our named executive officers other than our CEO
      were generally consistent with the aggregate 4.75% pay increase approved by
      the
      Committee for our departments for 2006. For 2006, the average increase in the
      salaries of the executive officers, excluding the CEO, from 2005 salaries was
      5.65%. Base salary increases granted to Messrs. Bruce, Lodwick and Lombardi
      for 2006 ranged from 3.0 to 5.0% and were established after considering job
      performance, internal pay alignment and equity, and marketplace competitiveness.
      Mr. Doyle’s base salary for 2006 was increased by 10.0% after taking into
      account the above factors plus the fact that his base salary in 2005 was below
      base salaries paid to peers at similar size companies and his contributions
      to
      our growth over the last three years. The salary of our CEO is set by the
      Committee, but in accordance with his employment agreement, was established
      at
      $590,000 for 2006, the same as for 2005. Although it is generally customary
      for
      the Committee to adjust Mr. Haligowski’s base salary on a bi-annual basis, and
      despite Nash and Company, Inc. stating that a 10% salary increase would be
      in
      line with the practices of a peer group of companies, the Committee determined
      not to adjust Mr. Haligowski’s base salary for 2007. As noted below, in order to
      make a greater proportion of Mr. Haligowski’s compensation based on our
      performance, the Committee instead determined to increase Mr. Haligowski’s
      targeted cash incentive opportunity for 2007.








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*Annual
      Executive Bonus Plan* ***.*** We
      provide the opportunity for our named executive officers and other executives
      to
      earn an annual cash incentive award. We provide this opportunity to attract
      and
      retain an appropriate caliber of talent for the position and to motivate
      executives to achieve our annual business goals. We establish annual target
      cash
      incentive opportunities annually in December or January expressed as a
      percentage of base salary to be paid during the ensuing fiscal year. For 2006,
      annual target cash incentive opportunities for the named executive officers
      other than Mr. Haligowski were set at up to 50% of base salary and at up to
      150%
      of base salary for Mr. Haligowski. The 2007 target established by the Committee
      is the same except that Mr. Haligowki’s annual cash incentive opportunity was
      set at up to 200% of base salary. The Committee increased Mr. Haligowski’s
      targeted cash incentive opportunity since his base salary was not increased
      in
      2006, as discussed above.





Our
      awards are subject to the Committee’s discretion and may take into account the
      achievement of goals set forth in our annual strategic plan, individual
      performance and the recommendation of the CEO (for awards other than his own).
      As a result, actual bonuses may be above or below target bonus levels, at the
      discretion of the Committee. Bonus payments under our annual bonus plan are
      contingent on continued employment with us at the end of the year. In 2005,
      the
      corporate goals identified by the Committee and **** the
      board
      for 2006 included meeting various objectives relating generally to loan
      production, asset quality, pre-tax earnings and net income. In December 2006,
      the Committee and the board determined that applicable corporate performance
      goals that were achieved in 2006 merited a bonus award of 100% of the target
      bonus award for the named executive officers other than Mr. Haligowski and
      110%
      of the target bonus award for Mr. Haligowski. The Committee and the board
      determined that Mr. Haligowski should receive an award of 164% of his base
      salary due to his continued outstanding leadership and contributions to the
      Company’s accomplishments in 2006.





In
      exercising its discretion, the Committee may take into account factors affecting
      our overall corporate performance goals and our actual performance results
      that
      may cause differences between the numbers used for our performance goals and
      the
      numbers reported in our financial statements. These factors may exclude all
      or a
      portion of both the positive or negative effect of external events that are
      outside the control of our executives, such as natural disasters, litigation,
      or
      regulatory changes in accounting, taxation or capital standards. These
      adjustments may also exclude all or a portion of both the positive or negative
      effect of unusual or significant strategic events that are within the control
      of
      our executives but that are undertaken with an expectation of improving our
      long-term financial performance, such as restructurings, acquisitions, or
      divestitures.





*Equity
      Awards.* We
      provide the opportunity for our named executive officers and other executives
      to
      earn a long-term equity incentive award. Long-term equity incentive awards
      provide employees with the incentive to stay with us for longer periods of
      time,
      which in turn, provides us with greater stability. Stock options and other
      equity awards also align the incentives of our executives with the interests
      of
      our shareholders and with our long-term success. The Committee and board develop
      their equity award determinations based on their judgments as to whether the
      complete compensation packages provided to our executives, including prior
      equity awards, are sufficient to retain, motivate and adequately award the
      executives. We have traditionally used stock options as our form of equity
      compensation because stock options provide a relatively straightforward
      incentive for our executives, result in less immediate dilution of existing
      shareholders’ interests and, prior to our adoption of SFAS No. 123(R), resulted
      in less compensation expense for us relative to other types of equity
      awards.





We
      generally review long-term equity incentives for our named executive officers
      and other executives annually in December or January. We grant equity awards
      to
      employees through our ESIP, which was adopted by our board and shareholders
      to
      permit the grant of stock options, stock appreciation rights, restricted stock,
      restricted stock units, performance shares and performance units. The material
      terms of the ESIP are further described below under “Additional Information
      Regarding Executive Compensation—Outstanding Equity Awards at December 31,
      2006-Stock Incentive Plans.”





For
      the
      last completed fiscal year, the Committee determined that our named executive
      officers had a sufficient equity stake in us, consisting of shares of common
      stock and/or existing options, to align their interests with ours and our
      stockholders and consequently there were no new equity award grants in 2006
      to
      our named executive officers.





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We
      do not
      coordinate the timing of equity award grants with the release of material
      non-public information. The exercise price for stock options is established
      at
      the fair market value of the closing price of our stock on the date the
      Committee approves the grant. Our stock options generally have a 10-year
      contractual exercise term. All of our outstanding stock options and other equity
      awards to our named executive officers are fully vested.





In
      general, option grants are also subject to the following post-termination and
      change in control provisions:





Event
            Award
                Vesting
            Exercise
                TermTermination
                by Us Other than Cause; Disability, Retirement or Death
            Forfeit
                Unvested
            Earlier
                of: (1) three (3) months or (2) Remaining Option PeriodDisability,
                Retirement or Death
            Forfeit
                Unvested
            Earlier
                of: (1) six (6) months or (2) Remaining Option Period Option
                PeriodTermination
                for Cause
            Forfeit
                Vested and
              Unvested
            ExpireOther
                Termination
            Forfeit
                Unvested
            Earlier
                of: (1) Remaining Option Period or (2) 30 Days from Date of
                TerminationChange
                in Control
            Accelerated*
            *______________
              *In
                the event of a change in control as defined in the ESIP, any outstanding
                awards that are unexercisable or otherwise unvested will become fully
                vested and immediately exercisable. If there is a termination of
                employment, the applicable termination provisions regarding exercise
                term
                will apply.





**Executive
      Benefits and Perquisites**





Our
      named
      executive officers and other executives participate in our broad based employee
      benefit plans, including medical, dental, vision, insurance and our 401(k)
      plan
      (including matching contributions) and, like all other employees, may receive
      a
      preferential interest rate on interest-bearing deposit accounts. These plans
      and
      benefits are available to all salaried employees and do not discriminate in
      favor of executive officers. We also make the SERP available to our named
      executive officers and the Deferred Compensation Plans available to our named
      executive officers and other highly compensated employees. Mr. Haligowki is
      currently the only participant in our Salary Continuation Plan. The material
      terms of these plans are further described below under “Additional Information
      Regarding Executive Compensation—Agreements with Mr. Haligowski—Salary
      Continuation Plan,”“—Nonqualified Deferred Compensation” and “—Supplemental
      Executive Retirement Plan.”





We
      also
      provide additional personal benefits and perquisites as an additional incentive
      for our executives, to remain competitive in the general marketplace for
      executive talent and to minimize distractions from the executive’s attention to
      important ITLA Capital initiatives. The Committee periodically reviews the
      levels of perquisites and other personal benefits provided to executive
      officers. We have no current plans to make material changes to levels of
      benefits and perquisites provided to our executives.








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For
      the
      last completed fiscal year, we provided the following personal benefits and
      perquisites to our named executive officers:





Executive
                Benefit
            DescriptionAutomobile
                Plan
            Certain
                executives are provided with a Company-owned automobile or an automobile
                allowance pursuant to our automobile policy.Reimbursed
                Life Insurance Premiums
            We
                reimburse certain executives for certain life insurance premium
                payments.Computer
                Equipment and Internet Connection Service
            We
                provide certain executives with computer equipment and an internet
                connection for use in their homes.Club
                Memberships
            Certain
                executives have their club membership dues
                reimbursed.





In
      addition, ITLA Capital makes available a corporate limousine and driver to
      certain executive officers for business use only. Mr. Haligowski also receives
      a
      housing allowance, reimbursement for financial counseling and tax preparation,
      the use of a chartered aircraft for up to 35 hours per year, reimbursement
      for a
      non-equity membership in one private club in an initial amount not to exceed
      $7,500 with monthly dues of $400 (as may be increased or decreased by the club),
      reimbursement for his reasonable expenses and costs associated with his
      memberships in the Young Presidents' Organization and the Harvard Business
      School Alumni Association, and tax reimbursement payments. The cost for
      chartered aircraft use is based on the duration of the flight, not on the number
      of passengers. We do not incur any additional costs for adding passengers when
      there are seats available on the aircraft. Accordingly, we do not assign any
      cost for family members accompanying Mr. Haligowski on any of those flights.
      We
      gross-up his compensation or otherwise reimburse his taxes on any income imputed
      as a result of personal aircraft usage. However, as a result of Internal Revenue
      Service rules, executives are imputed income for any family members or other
      personal guests who may accompany the executive officer on any flights. In
      instances where family member or other personal guest attendance has been
      related to the business purpose of the trip, we have grossed-up Mr. Haligowski’s
      compensation to cover taxes on any income imputed as a result of their
      attendance. The Committee believes that such benefits are appropriate and often
      assist with Mr. Haligowski fulfilling his employment obligations.





Attributed
      costs of the personal benefits described above for the named executive officers
      for the fiscal year ended December 31, 2006, are included in the “All Other
      Compensation” column of the Summary Compensation Table.





**Change
      in Control and Severance Benefits**





We
      provide the opportunity for Mr. Haligowski and our executive officers to be
      protected in the event of a change of control and/or an “involuntary
      termination” of employment following a change of control of ITLA Capital. Mr.
      Haligowski may also receive certain payments and benefits pursuant to his
      employment agreement if his employment is involuntarily terminated not in
      connection with a change in control. The purpose of providing these change
      in
      control payments and benefits is to attract and retain executives of the highest
      caliber and mitigate the risk to these executives that their employment will
      be
      involuntarily terminated in the event we are acquired.





Mr.
      Haligowski’s employment agreement and his non-competition and non-solicitation
      agreement, and Mr. Bruce’s and Mr. Doyle’s change of control agreements provide
      for certain payments and benefits upon a change of control. Each of these
      agreements were entered into in 2006 and were individually negotiated by the
      Committee and management. In Mr. Haligowski’s case these agreements were
      negotiated to be generally consistent with the amount of benefits and terms
      of
      his prior severance benefits under his original employment agreement. In the
      case of Messrs. Bruce and Doyle, these agreements replaced the requirement
      contained in their prior change of control agreements that an involuntary
      termination occur with any termination of employment (other than for cause)
      as a
      trigger for payment. The Committee eliminated this requirement in recognition
      of
      their years of service to us relative to the other executive officers, and
      that
      these individuals are not receiving any substituted benefit to make up for
      the
      lack of SERP allocations in 2006 and thereafter. A cap was placed on the amount
      of their cash payment.








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The
      change of control agreements for Messrs. Lodwick and Lombardi provide for
      certain payments and benefits if their employment is involuntarily terminated
      in
      connection with or within 24 months after a change in control of ITLA Capital.
      Each of these change in control severance agreements thus requires a “double
      trigger” in order for any payments or benefits to be provided to the named
      executive officer in connection with or following a change in control - in
      other
      words, both a change in control and an involuntary termination of employment
      (which includes a voluntary termination by the executive following a material
      reduction in his or her duties, responsibilities or benefits) must occur. At
      the
      same time, the mere sale of ITLA Capital will not automatically trigger a
      payout, as our intention is to induce the executive to remain employed following
      a change in control so long as the acquiring Company so desires without a
      material reduction in the executive’s duties, responsibilities or benefits. Our
      severance and change in control provisions for the named executive officers
      are
      summarized in “Additional Information Regarding Executive
      Compensation—Agreements with Mr. Haligowski” and “—Change of Control
      Agreements.”





We
      believe these severance and change in control benefits are an essential element
      of our executive compensation package and assist us in recruiting and retaining
      talented individuals. We also believe that our severance and change in control
      provisions are consistent with the provisions and benefit levels of other
      companies disclosing such provisions as reported in public SEC filings.
      Information regarding applicable severance and change in control benefits for
      the named executive officers is provided under the heading “Potential Payments
      Upon Termination of Employment.”





**Impact
      of Accounting and Tax Treatments of Compensation**





Section
      162(m) of the Internal Revenue Code generally eliminates the deductibility
      of
      compensation over $1 million paid to certain highly compensated executive
      officers of publicly held corporations, excluding certain qualified
      performance-based compensation.  The Committee has reviewed and will
      continue to review on an ongoing basis our executive compensation programs,
      and
      propose appropriate modifications to these programs, if the Committee deems
      them
      necessary, with a view toward implementing our compensation programs in a manner
      that avoids or minimizes any disallowance of tax deductions under Section
      162(m). The Committee will balance these considerations against the need to
      be
      able to compensate executives in a manner commensurate with performance and
      the
      competitive environment for executive talent. While stock options and stock
      appreciation rights as a general matter automatically constitute qualified
      performance-based compensation (provided that the certain plan content and
      grant
      procedure requirements are met), cash and other equity-based awards (including
      but not limited to restricted stock) must be subject to stockholder-approved
      performance criteria in order to so qualify. In this regard, the ESIP approved
      by stockholders authorizes the awarding of equity-based performance awards
      that
      constitute qualified performance-based compensation exempt from the $1 million
      deductibility limit of Section 162(m).





With
      our
      adoption, effective January 1, 2006, of SFAS No. 123(R), “Share-Based Payment”
(“SFAS No. 123R”), which requires the recognition of compensation expense for
      stock options, we do not expect the accounting treatment of differing forms
      of
      equity awards to vary significantly. Accordingly, accounting treatment is not
      expected to have a material effect on the selection of forms of equity
      compensation in the foreseeable future.





**Role
      of Executive Officers in Determining Compensation**





Our
      Chief
      Executive Officer, Mr. Haligowski **,** recommends
      to the Committee base salary, target annual incentive compensation bonus levels,
      actual bonus payments and long-term incentive grants for our executive officers
      (other than himself). Mr. Haligowski makes these recommendations to the
      Committee based on publicly available industry data and qualitative judgments
      regarding individual performance. Mr. Haligowski is not involved with any aspect
      of determining his own compensation.








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**ADDITIONAL
      INFORMATION REGARDING EXECUTIVE COMPENSATION**





**2006
      Summary Compensation Table**





The
      following table sets forth the compensation earned for the year ended December
      31, 2006 by the named executive officers:








Name
                and Principal Position
            
            Year
            
            Salary
            
            Bonus
                (1)
            
            Stock
                Awards
            
            Option
                Awards
            
            Non-Equity
                Incentive Plan Compensation (2)
            
            Change
                in Pension Value and Non-qualified Deferred Compensation
                Earnings
            
            All
                Other Compensation (3)
            
            Total
                CompensationGeorge
                W. Haligowski
            
            
            2006
            
            $
            590,000
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            969,750
            
            $
            33,451
            
            $
            394,523
                (4
            )
            $
            1,987,724Chairman
                of the Board, Presidentand
                Chief Executive OfficerNorval
                L. Bruce
            
            
            2006
            
            $
            248,200
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            124,100
            
            $
            23,718
            
            $
            82,832
                (5
            )
            $
            478,850Vice
                Chairman of the Board andChief
                Credit OfficerTimothy
                M. Doyle
            
            
            2006
            
            $
            247,500
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            123,750
            
            $
            —
            
            $
            33,371
                (6
            )
            $
            404,621Executive
                Managing Director and ChiefFinancial
                OfficerLyle
                C. Lodwick
            
            
            2006
            
            $
            235,000
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            117,498
            
            $
            —
            
            $
            23,700
                (7
            )
            $
            376,198Executive
                Managing Director and ChiefOperating
                OfficerPhillip
                E. Lombardi
            
            
            2006
            
            $
            170,000
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            85,000
            
            $
            —
            
            $
            13,482
                (8
            )
            $
            268,482Managing
                Director and Chief ofLending
                Operations


____________


(1)
            Bonus
                amounts for 2006 are reported under the “Non-Equity Incentive Plan
                Compensation” column.(2)
            Represents
                cash incentive bonus award earned for 2006.(3)
            Included
                within this column is the incremental cost to the Company associated
                with
                the named executive’s personal use of a Company-owned automobile, based on
                the depreciation expense incurred by the Company for the
                year.(4)
            For
                2006, represents the aggregate incremental cost to us of perquisites
                and
                other personal benefits, and other compensation provided, totaling
                $394,523, including: (a) $42,000 in supplemental housing payments,
                (b)
                $141,124 in preferential interest on employee savings accounts in
                2006
                (available to all employees), (c) $60,960 for Mr. Haligowski’s personal
                use of chartered air transportation service paid for by the Company,
                and
                (d) $108,710 for club memberships and meeting attendance related
                expenses.
                Additional amounts included within “All Other Compensation” include life
                insurance premiums, employer contributions to ITLA Capital’s 401(k) plan,
                    financial counseling and tax preparation fees, home computer
                equipment and
                internet service, and reimbursements for tax obligations incurred
                by Mr.
                Haligowski.U(5)
            For
                2006, represents the aggregate incremental cost to us of perquisites
                and
                other personal benefits, and other compensation provided, totaling
                $82,832, including: (a) $45,802 in preferential interest on employee
                savings accounts in 2006. Additional amounts included within “All Other
                Compensation” include life insurance premiums, employer contributions to
                ITLA Capital’s 401(k) plan, home computer equipment and internet service,
                and club memberships.(6)
            For
                2006, represents the aggregate incremental cost to us of perquisites
                and
                other personal benefits, and other compensation provided, totaling
                $33,371, including: (a) $13,417 in preferential interest on employee
                savings accounts in 2006. Additional amounts included within “All Other
                Compensation” include life insurance premiums, employer contributions to
                ITLA Capital’s 401(k) plan, and home computer equipment.(7)
            For
                2006, represents the aggregate incremental cost to us of perquisites
                and
                other personal benefits, and other compensation provided, totaling
                $23,700, including: (a) $13,327 in preferential interest on employee
                savings accounts in 2006. Additional amounts included within “All Other
                Compensation” include life insurance premiums, and employer contributions
                to ITLA Capital’s 401(k) plan.(8)
            For
                2006, represents the aggregate incremental cost to us of perquisites
                and
                other personal benefits, and other compensation provided, totaling
                $13,482. Amounts included within “All Other Compensation” include life
                insurance premiums, employer contributions to ITLA Capital’s 401(k) plan,
                and preferential interest on employee savings accounts in 2006.








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**Agreements
      with Mr. Haligowski**





*Employment
      Agreement.* On
      February 24, 2006, we entered into an amended and restated employment agreement
      with Mr. Haligowski, which constituted an amendment and restatement of his
      Original Employment Agreement with ITLA Capital dated January 28, 2000 (the
      "Employment Agreement"). The Employment Agreement has a five-year term which
      commenced effective as of January 1, 2006 and is renewable on each subsequent
      January 1st, as long as neither ITLA Capital, nor the Bank, has notified Mr.
      Haligowski at least 90 days in advance that the term will not be so extended.
      If
      a "change in control" (as defined in the Employment Agreement) occurs during
      the
      term of the Employment Agreement, then notwithstanding the delivery of any
      notice of non-renewal to Mr. Haligowski, the employment term will automatically
      be extended until five years after the date of the change in
      control.





The
      Employment Agreement entitles Mr. Haligowski to: (1) an annual base salary
      of
      not less than $590,000; (2) participate in any performance-based awards and
      discretionary bonuses paid to executive officers; (3) receive a minimum monthly
      housing allowance of $3,500 and, at his election, a minimum monthly automobile
      allowance of $2,600 or the use of a vehicle pursuant to our automobile policy;
      (4) receive a personal life insurance policy, with premiums paid by us,
      providing a death benefit of at least four times his annual base salary; (5)
      receive memberships paid by us in certain organizations and clubs; (6) up to
      $6,500 per year, plus imputed taxes, for the maintenance of his personal estate
      and tax planning; and (7) participate in benefit plans and receive other fringe
      benefits provided by us.





The
      Employment Agreement provides that if Mr. Haligowski is "involuntarily
      terminated" prior to a change in control, then he will: (1) receive a prorated
      lump sum payment based on the amount of cash bonus and other cash incentive
      compensation paid to him for our last completed fiscal year; (2) either (a)
      continue to receive monthly through the remaining term of the agreement
      one-twelfth of his base salary at the highest annual rate in effect during
      the
      three years before the termination date and one-twelfth of the average amount
      of
      cash bonus and cash incentive compensation earned by him during the two fiscal
      years preceding the termination date or (b) at his election, receive the amount
      of all payments described in (a) in a lump sum; (3) either (a) continue to
      receive for himself and his dependents substantially the same medical, dental
      and disability benefits at the same cost to him for five years after the date
      of
      termination, reduced to the extent he receives substantially the same coverage
      at substantially the same cost to him from another employer, or (b) at his
      election (or at our election, if coverage under our group plan is not available
      to Mr. Haligowski and his dependents), receive an amount in cash equal to the
      premium cost being paid by us before the termination date; (4) be provided
      with
      office space and secretarial support of the same type provided during his
      employment for 18 months after the termination date; (5) receive title to owned
      or leased vehicle being used by him; (6) receive all interests maintained by
      us
      in life insurance policies maintained on his life, including the cash surrender
      values; and (7) become vested in all of his outstanding unvested stock options
      and restricted stock awards held in the SERP.





The
      Employment Agreement provides that if Mr. Haligowski is involuntarily terminated
      in connection with or within five years after a change in control of ITLA
      Capital, then he will receive a lump sum payment equal to 299% of his "base
      amount," as defined in Section 280G of the Code, less the present value of
      the
      benefits to be received by him under ITLA Capital's Salary Continuation Plan
      and
      the accelerated vesting present value of stock options and restricted stock,
      to
      the extent such amounts are required to be considered in the calculation of
      parachute payments under Section 280G of the Code (the "Lump Sum Change in
      Control Payment"). Instead of receiving the full amount of the Lump Sum Change
      in Control Payment, however, Mr. Haligowski may elect to receive the continued
      health, medical and disability insurance benefits, 18 months of office space
      and
      secretarial support, title to his Company-owned or leased vehicle and ITLA
      Capital's interests in the life insurance policies on his life, each as
      described in the immediately preceding paragraph, in which case the amount
      of
      the Lump Sum Change in Control Payment will be reduced by the present value
      of
      these elected benefits (the "Elective Benefits"). In no event may the Lump
      Sum
      Change in Control Payment, prior to reduction for Elective Benefits, exceed
      the
      aggregate of 100% of the total value of the payments and benefits Mr. Haligowski
      would receive under the Employment Agreement if the involuntarily termination
      occurred prior to a change in control, plus 150% of his annual base salary
      in
      effect before the change in control. This resulting aggregate amount is equal
      to
      the value of Mr. Haligowski's change in control benefits under the Original
      Employment Agreement, excluding the SERP change in control benefit referred
      to
      in the Original Employment Agreement of 3.95 times his annual base salary but
      inclusive of the life insurance benefit described in the preceding paragraph
      (the "Original Agreement Adjusted Change in Control Benefit"). The Employment
      Agreement provides that if a change in control occurs on or after January 1,
      2008, the Lump Sum Change in Control Payment prior to reduction for Elective
      Benefits may not be less than the Original Agreement Adjusted Change in Control
      Benefit less $1.0 million, notwithstanding the fact that this amount exceeds
      299% of Mr. Haligowski's base amount.








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The
      Employment Agreement provides that if any of the change in control payments
      or
      benefits to be provided under the agreement in combination with any payments
      or
      benefits under other plans or arrangements constitute "excess parachute
      payments" under Section 280G of the Code, Mr. Haligowski will be paid an
      additional amount (referred to as a "gross up payment") that will offset, on
      an
      after tax basis, the effect of any excise tax consequently imposed upon him
      under Section 4999 of the Code.





The
      term
      "Change in Control" means the occurrence of any of the following events with
      respect to ITLA Capital, or with respect to the Bank: (1) any person (as the
      term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934
      (the "Exchange Act") is or becomes the beneficial owner (as defined in Rule
      13d-3 under the Exchange Act), directly or indirectly of securities of ITLA
      Capital, or the Bank representing 33.33% or more of ITLA Capital's or the Bank's
      outstanding securities; (2) individuals who are members of the Board of
      Directors of ITLA Capital or the Bank on the date hereof (the "Incumbent Board")
      cease for any reason to constitute at least a majority thereof, provided that
      any person becoming a director subsequent to the date hereof whose election
      was
      approved by a vote of at least two-thirds of the directors comprising the
      Incumbent Board, or whose nomination for election by ITLA Capital's or the
      Bank's stockholders was approved by the nominating committee serving under
      an
      Incumbent Board, shall be considered a member of the Incumbent Board; (3) a
      reorganization, merger, consolidation, sale of all or substantially all of
      the
      assets of ITLA Capital or the Bank, or a similar transaction in which ITLA
      Capital or the Bank is not the resulting entity (unless the continuing ownership
      requirements clause (4) below are met with respect to the resulting entity);
      or
      (4) a merger or consolidation of ITLA Capital or the Bank with any other
      corporation other than a merger or consolidation in which the voting securities
      of ITLA Capital or the Bank outstanding immediately prior thereto represent
      at
      least 66.67% of the total voting power represented by the voting securities
      of
      ITLA Capital or the Bank or the surviving entity outstanding immediately after
      such merger or consolidation. The term "Change in Control" shall not include:
      (1) an acquisition of securities by an employee benefit plan of ITLA Capital
      or
      the Bank; (2) any of the above mentioned events or occurrences involving any
      other subsidiary of ITLA Capital or the Bank, although this may be amended
      at a
      later date; or (3) any of the above mentioned events or occurrences which
      require but do not receive the requisite government or regulatory approval
      to
      bring the event or occurrence to fruition. The term "involuntary termination"
      is
      defined to include termination of Mr. Haligowski's employment by ITLA Capital
      or
      the Bank (other than for cause or due to retirement after attaining age 65)
      without his consent, by Mr. Haligowski following a material reduction of or
      interference with his duties, responsibilities or benefits without his consent
      or by ITLA Capital or the Bank (or their successors) or by Mr. Haligowski at
      the
      time of or within five years after a Change in Control.





Under
      the
      Employment Agreement, if Mr. Haligowski is terminated due to disability or
      death, then he or his estate will be entitled to the same payments and benefits
      to which he would have been entitled if he were involuntarily terminated prior
      to a change in control, other than the continued use of office space and
      secretarial support, plus a prorated amount of any bonus or other incentive
      compensation for the year in which the termination occurs. If Mr. Haligowski
      voluntarily terminates his employment other than for a reason that constitutes
      involuntary termination or other than in connection with or within five years
      after a change in control, he will receive his base salary and benefits earned
      through the date of termination plus any benefit continuation required by law.
      If Mr. Haligowski's employment is terminated for cause, ITLA Capital will have
      no obligations to him under the Employment Agreement, other than any benefit
      continuation required by law.





*Non-competition
      and Non-solicitation Agreement.* We
      entered into a non-competition and non-solicitation agreement (the
      "Non-Competition Agreement") with Mr. Haligowski on February 24, 2006. Like
      the
      Employment Agreement, the Non-Competition Agreement has a five-year term which
      commenced effective as of January 1, 2006. Mr. Haligowski's forbearance
      obligations under the Non-Competition Agreement begin on his employment
      termination in connection with or following an acquisition of ITLA Capital
      or
      the Bank and continue for three years thereafter (the "Restricted Period").
      Mr.
      Haligowski will receive aggregate payments of $3.5 million during the Restricted
      Period in consideration of his compliance with his obligations under the
      Non-Competition Agreement during the Restricted Period. ITLA Capital has the
      unilateral right to extend the term of the Non-Competition Agreement for an
      additional five year term by adjusting the compensation to be paid to Mr.
      Haligowski under that agreement.





*Salary
      Continuation Plan.* The
      Salary Continuation Plan, which was originally adopted by ITLA Capital in March
      2000 and in which Mr. Haligowski is currently the only participant, provides
      that if the participant's employment is terminated for any reason other than
      cause, or if the participant retires after attaining age 65, the participant
      will begin receiving an annual salary continuation benefit six months thereafter
      (or starting on the first day of the next calendar month, if termination is
      due
      to death or disability), payable monthly over 15 years. The amount of Mr.
      Haligowski's annual salary continuation benefit is 75% of his average annual
      base salary for the three full calendar years preceding the year in which
      termination occurs or in which he attains age 65.





Information
      regarding applicable severance and change in control benefits for Mr. Haligowski
      is provided under the heading “Potential Payments Upon Termination of
      Employment.”





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**2006
      Grants of Plan-Based Awards**





The
      following table sets forth information regarding plan-based awards to our named
      executive officers in 2006:




Name
              
              Grant
                  Date
              
              Estimated
                  Possible Payouts Under Non-Equity Incentive Plan Awards
                Target*(1)*
              
              Estimated
                  Future Payouts Under Equity Incentive Plan Awards
                Target*(1)*
              
              All
                  Other Stock Awards: Number of Shares of Stock or Units
                Maximum
                  (#)
              
              All
                  Other Option Awards: Number of Securities Underlying Options
                  (#)
              
              Exercise
                  or Base Price of Option Awards ($/Sh)
              
              Grant
                  Date Fair Value of Stock and Option AwardsGeorge
                  W. Haligowski
              
              
              n/a
              
              
              
              
              $
              885,000
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Norval
                  L. Bruce
              
              
              n/a
              
              
              
              
              $
              124,100
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Timothy
                  M. Doyle
              
              
              n/a
              
              
              
              
              $
              123,750
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Lyle
                  C. Lodwick
              
              
              n/a
              
              
              
              
              $
              117,500
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Phillip
                  E. Lombardi
              
              
              n/a
              
              
              
              
              $
              85,000
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —




_______________


*(1)*
            *For
                each executive officer represents target amount potentially payable
                under
                our Annual Executive Bonus Plan for 2006 (up to 150% of base salary
                for
                Mr. Haligowski and up to 50% of base salary for each of the other
                named
                executive officers) at the time the targets for these awards were
                set by
                the Committee and approved by the board in January 2006. The actual
                amounts earned for 2006 under these awards are reflected in the Summary
                Compensation Table under the “Non-Equity Incentive Plan Compensation”
                column.*





**Outstanding
      Equity Awards At December 31, 2006**





The
      following table provides information regarding each unexercised stock option
      held by each of our named executive officers as of December 31,
      2006:





Option
                Awards
            
            Stock
                AwardsName
            
            Number
                of Securities Underlying Unexercised Options (#)
                Exercisable
            
            Number
                of Securities Underlying Unexercised Options (#)
                Unexercisable
            
            Equity
                Incentive Plan Awards: Number of Securities Underlying Unexercised
                Unearned Options (#)
            
            Option
                Exercise Price
            
            Option
                Expiration Date
            
            Number
                of Shares or Units of Stock That Have Not Vested (#)
            
            Market
                Value of Shares or Units of Stock That Have Not Vested
            
            Equity
                Incentive Plan Awards: Number of Unearned Shares, Units or Other
                Rights
                That Have Not Vested (#)
            
            Equity
                Incentive Plan Awards: Market or Payout Value of Unearned Shares,
                Units or
                Other Rights That Have Not VestedGeorge
                W. Haligowski
            
            
            45,000
            
            
            —
            
            
            —
            
            $
            18.00
            
            
            2/2/2008
            
            
            —
            
            
            —
            
            
            —
            
            
            —10,000
            
            
            —
            
            
            —
            
            $
            14.00
            
            
            2/2/2009
            
            
            —
            
            
            —
            
            
            —
            
            
            —37,500
            
            
            —
            
            
            —
            
            $
            23.00
            
            
            2/19/2012
            
            
            —
            
            
            —
            
            
            —
            
            
            —50,000
            
            
            —
            
            
            —
            
            $
            48.46
            
            
            12/19/2015
            
            
            —
            
            
            —
            
            
            —
            
            
            —Total
            
            
            142,500Norval
                L. Bruce
            
            
            10,500
            
            
            —
            
            
            —
            
            $
            23.00
            
            
            2/19/2012
            
            
            —
            
            
            —
            
            
            —
            
            
            —12,500
            
            
            —
            
            
            —
            
            $
            48.46
            
            
            12/19/2015
            
            
            —
            
            
            —
            
            
            —
            
            
            —Total
            
            
            23,000Timothy
                M. Doyle
            
            
            15,000
            
            
            —
            
            
            —
            
            $
            18.00
            
            
            2/02/08
            
            
            —
            
            
            —
            
            
            —
            
            
            —15,000
            
            
            —
            
            
            —
            
            $
            14.00
            
            
            2/02/09
            
            
            —
            
            
            —
            
            
            —
            
            
            —5,000
            
            
            —
            
            
            —
            
            $
            11.00
            
            
            1/31/2010
            
            
            —
            
            
            —
            
            
            —
            
            
            —15,000
            
            
            —
            
            
            —
            
            $
            23.00
            
            
            2/19/2012
            
            
            —
            
            
            —
            
            
            —
            
            
            —25,000
            
            
            —
            
            
            —
            
            $
            48.46
            
            
            12/19/2015
            
            
            —
            
            
            —
            
            
            —
            
            
            —Total
            
            
            75,000Lyle
                C. Lodwick
            
            
            35,000
            
            
            —
            
            
            —
            
            $
            54.25
            
            
            8/8/2015
            
            
            —
            
            
            —
            
            
            —
            
            
            —12,500
            
            
            —
            
            
            —
            
            $
            48.46
            
            
            12/19/2015
            
            
            —
            
            
            —
            
            
            —
            
            
            —Total
            
            
            47,500Phillip
                E. Lombardi
            
            
            22,500
            
            
            —
            
            
            —
            
            $
            53.33
            
            
            6/24/2015
            
            
            —
            
            
            —
            
            
            —
            
            
            —7,500
            
            
            —
            
            
            —
            
            $
            48.46
            
            
            12/19/2015
            
            
            —
            
            
            —
            
            
            —
            
            
            —Total
            
            
            30,000









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*Stock
      Incentive Plans.* On July
      27, 2005, ITLA Capital’s shareholders approved the ESIP and the 2005
      Re-Designated, Amended and Restated Stock Option Plan For Nonemployee Directors
      (the “Director Option Plan” and together with the ESIP the “Stock Option
      Plans”). The Stock Option Plans were originally approved by shareholders on
      October 18, 1995 and amendments and restatements of these plans were approved
      by
      shareholders on July 27, 2005.





In
      accordance with the Stock Option Plans, officers, directors and our employees
      are eligible to receive options to purchase common stock. Under the ESIP,
      officers and employees are also eligible for awards of stock appreciation
      rights, restricted stock, restricted stock units, performance shares and
      performance units. The purpose of the Stock Option Plans is to enable us to
      attract, retain and motivate employees by providing for or increasing their
      proprietary interests in ITLA Capital, and in the case of nonemployee directors,
      to attract such directors and further align their interests with our interests.
      Every one of our employees is eligible to be considered for the grant of awards
      under the ESIP. The maximum number of shares of common stock that may be issued
      pursuant to awards granted under the ESIP is 1,561,000 shares, provided that
      each share issued pursuant to awards of stock appreciation rights, restricted
      stock, restricted stock units, performance shares and performance units counts
      against this limit as two shares. The maximum number of shares of common stock
      that may be issued pursuant to awards granted under the Director Option Plan
      is
      70,000 shares. The maximum number of shares of common stock and shares with
      respect to outstanding awards under the Stock Option Plan are subject to
      adjustment in the event of a stock dividend, stock split, recapitalization
      or
      similar event.





The
      Stock
      Option Plans are administered by the Committee and, other than with respect
      to
      formula awards under the Director Option Plan described below, the Committee
      has
      full authority to select the employees and directors to receive awards and
      to
      grant such awards. Subject to provisions of the Stock Option Plans, the
      Committee has a wide degree of flexibility in determining the terms and
      conditions of awards and the number of shares to be issued pursuant thereto.
      The
      expenses of administering the Stock Option Plans are borne by us.





The
      ESIP
      authorizes the Committee to enter into any type of arrangement with an eligible
      employee that, by its terms, involves or might involve the issuance of common
      stock or any other security or benefit with a value derived from the value
      of
      common stock. Awards to employees are not restricted to any specified form
      or
      structure and may include but are not limited to stock options, stock
      appreciation rights, restricted stock, restricted stock units, performance
      shares and performance units. Under the Director Option Plan, each
      person who was a non-employee director on the original effective date of the
      plan (October 18, 1995) automatically received as of that date, and each person
      who became or becomes a non-employee director after the original effective
      date
      of the plan automatically received or will receive, as of the date such person
      became or becomes a non-employee director, non-qualified stock options to
      acquire 5,000 shares of common stock, subject to adjustment as described above,
      vesting in full on the one-year anniversary of the date of grant (referred
      to as
      the “initial award”). On the first, second, third, fourth and fifth
      anniversaries of the initial award, each non-employee director automatically
      received or will receive non-qualified stock options to acquire 1,000 shares
      of
      common stock, subject to adjustment as described above, vesting in full on
      the
      one-year anniversary of the date of grant (referred to as the “anniversary
      awards”). In addition to the anniversary awards, each non-employee director is
      eligible to receive grants of non-qualified stock options from time to time
      in
      the sole discretion of the Committee.





In
      the
      event of a change in control of ITLA Capital all awards under the Stock Option
      Plans shall vest 100%. For purposes of the Stock Option Plans, a "change in
      control" shall mean any of the following events:





(a)
      we
      receive a report on Schedule 13D filed with the Securities and Exchange
      Commission pursuant to Section 13(d) of the Exchange Act disclosing that any
      person, group, corporation or other entity is the beneficial owner directly
      or
      indirectly of 30% or more of our outstanding common stock;





(b)
      any
      person (as such term is defined in Section 13(d) of the Exchange Act), group,
      corporation or other entity other than us or any corporation owned directly
      or
      indirectly by our stockholders in substantially the same proportions as their
      ownership of stock in us, purchases shares pursuant to a tender offer or
      exchange offer to acquire any of our common stock, (or securities convertible
      into our common stock) for cash, securities or any other consideration, provided
      that after consummation of the offer, the person, group, corporation or other
      entity in question is the beneficial owner (as such term is defined in Rule
      13d-3 under the Exchange Act), directly or indirectly, of 30% or more of our
      outstanding common stock ;





(c)
      our
      stockholders approve (a) any consolidation or merger in which we or any
      corporation owned directly or indirectly by our stockholders in substantially
      the same proportions as their ownership of our common stock is not the
      continuing or surviving corporation or pursuant to which shares of our common
      stock would be converted into cash, securities or other property, or (b) any
      sale, lease, exchange or other transfer (in one transaction or a series of
      related transactions) of all or substantially all of our assets; or





(d)
      there
      shall have been a change in a majority of the members of our Board of Directors
      within a 12 month period unless the election or nomination for election by
      our
      stockholders of each new director was approved by the vote of two-thirds of
      the
      directors then still in office who were in office at the beginning of the 12
      month period.





Awards
      may not be granted under the Stock Option Plans after July 27, 2015, the tenth
      anniversary of the shareholder approvals of the amendments and restatements
      of
      the Stock Option Plans.




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**2006
      Option Exercises and Stock Vested**





The
      following table sets forth information about stock options exercised and shares
      of restricted stock vested during the year ended December 31, 2006 for each
      named executive officer:





Option
                Awards
            
            Stock
                AwardsName
            
            Number
                of Shares Acquired on Exercise (#)
            
            Value
                Realized on Exercise
            
            Number
                of Shares Acquired on Vesting (#)
            
            Value
                Realized on VestingGeorge
                W. Haligowski
            
            
            20,000
            
            $
            805,000
            
            
            —
            
            
            —Norval
                L. Bruce
            
            
            —
            
            
            —
            
            
            —
            
            
            —Timothy
                M. Doyle
            
            
            —
            
            
            —
            
            
            —
            
            
            —Lyle
                C. Lodwick
            
            
            —
            
            
            —
            
            
            —
            
            
            —Phillip
                E. Lombardi
            
            
            —
            
            
            —
            
            
            —
            
            
            —





**Nonqualified
      Deferred Compensation**




The
      following table sets forth information about compensation payable to each named
      executive officer under the Deferral Plan (as defined below):





Name
            
            Executive
                Contributions in Last FY
            
            Registrant
                Contributions in Last FY
            
            Aggregate
                Earnings in Last FY*(2)*
            
            Aggregate
                Withdrawals/ Distributions
            
            Aggregate
                Balance at Last FYEGeorge
                W. Haligowski
            
            $
            —
            
            $
            —
            
            $
            436,273
            
            $
            —
            
            $
            4,386,090Norval
                L. Bruce
            
            $
            185,404*(1*
            *)*
            $
            —
            
            $
            89,203
            
            $
            —
            
            $
            1,473,822Timothy
                M. Doyle
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Lyle
                C. Lodwick
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Phillip
                E. Lombardi
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —


_______________


*(1)*  *The
      entire amount is reported as compensation for 2006 in the Summary Compensation
      Table under the “Salary” column.*





*(2)*  *Based
      on the performance during 2006 of the investment options (including, among
      others, our Common Stock) selected by the named executive officers. Of the
      amounts shown, $33,451 and $23,718, representing the portion of the preferential
      interest credited to the accounts of Mr. Haligowski and Mr. Bruce, respectively,
      were reported as compensation for 2006 for Messrs. Haligowski and Bruce in
      the
      Summary Compensation Table under the “Change in Pension Value and Non-qualified
      Deferred Compensation Earnings” column.*





The
      ITLA
      Capital Corporation Supplemental Salary Savings Plan (the “Supplemental Plan”)
      and Nonqualified Deferred Compensation Plan (the “Deferral Plan”) are designed
      to provide additional retirement benefits for certain officers and highly
      compensated employees. The Supplemental Plan provides participating employees
      with an opportunity to make up benefits not available under the 401(k) Plan
      due
      to any application of limitations on compensation and maximum benefits under
      the
      401(k) Plan. Benefits under the Supplemental Plan are provided at the same
      time
      and in the same form as benefits under the 401(k) Plan, and become taxable
      to
      the participant at that point. None of the named executive officers currently
      participates in the Supplemental Plan. The Deferral Plan allows a participant
      to
      defer receipt of, and current taxation upon, designated portions of the
      participant’s direct cash compensation until a future date specified by the
      participant. Both of these plans are unfunded plans, meaning that all benefits
      payable thereunder are payable from our general assets, and funds available
      to
      pay benefits are subject to the claims of our general creditors. We have
      established a Rabbi Trust with a third party FDIC insured financial institution
      which holds the contributions to the Supplemental Plan and Deferral Plan, for
      the purpose of providing the benefits set forth under the terms of the plans.
      Participants only have the rights of unsecured creditors with respect to the
      Rabbi Trust assets.




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**Supplemental
      Executive Retirement Plan**





Pursuant
      to the SERP, the Committee allocated to participants on a tax-deferred basis
      shares of restricted stock issued to the SERP under our RRP. The last remaining
      RRP shares held in the SERP were allocated to SERP participants in 2005. Under
      the terms of the SERP, Mr. Haligowski received an annual restricted stock
      allocation equal to one-third of his base salary and all other participants
      received an annual restricted stock allocation equal to one-fifth of base
      salary, subject to the approval of the Committee, which could also allocate
      a
      greater or lesser award or no award in its discretion. For this purpose, each
      share of common stock issued to the SERP has been valued at $9.00 per share,
      the
      fair market value of the common stock on the date of issuance from the RRP
      to
      the SERP. All awards made under the SERP are now fully vested. The following
      table sets forth information about the SERP benefits payable to each named
      executive officer:





Name
            
            Executive
                Contributions in Last FY
            
            Registrant
                Contributions in Last FY
            
            Aggregate
                Earnings in Last FY*(1)*
            
            Aggregate
                Withdrawals/ Distributions
            
            Aggregate
                Balance at Last FYEGeorge
                W. Haligowski
            
            $
            —
            
            $
            —
            
            $
            1,546,185
            
            $
            —
            
            $
            9,460,178Norval
                L. Bruce
            
            $
            —
            
            $
            —
            
            $
            358,597
            
            $
            —
            
            $
            2,194,673Timothy
                M. Doyle
            
            $
            —
            
            $
            —
            
            $
            299,178
            
            $
            —
            
            $
            1,831,114Lyle
                C. Lodwick
            
            $
            —
            
            $
            —
            
            $
            30,893
            
            $
            —
            
            $
            189,655Phillip
                E. Lombardi
            
            $
            —
            
            $
            —
            
            $
            26,336
            
            $
            —
            
            $
            162,090


____________





*(1)*
            *Includes
                value of additional shares allocated pursuant to dividend reinvestment,
                as
                well as the change in fair value during the year related to SERP
                shares
                maintained within each participants’ respective trust account. None of
                these amounts were reported as compensation for 2006 in the Summary
                Compensation Table.*




**Change
      of Control Agreements**





We
      recently entered into change in control severance agreements with Messrs. Bruce,
      Doyle and Lodwick and Lombardi. In the case of Messrs. Bruce and Doyle, these
      agreements replaced their existing change in control severance agreements with
      ITLA Capital. The terms of the agreements are three years for the agreements
      with Messrs. Bruce and Doyle and one year for the agreements with Messrs.
      Lodwick and Lombardi, beginning effective as of February 1, 2006 and renewable
      on each subsequent February 1st, as long as neither ITLA Capital nor the officer
      gives notice to the other at least 90 days in advance that the term will not
      be
      so extended. If a "change in control" occurs during the term of the agreement,
      then notwithstanding the delivery of any non-renewal notice, the agreement
      term
      will automatically be extended until three years, in the case of the agreements
      with Messrs. Bruce and Doyle, or two years, in the case of the agreements with
      Messrs. Lodwick and Lombardi, after the date of the change in control.





The
      agreements with Messrs. Bruce and Doyle provides that if their employment is
      “terminated without cause” which means a termination for any reason other than
      cause within six months before or within three years after a change in control,
      or if the officer terminates his employment for any reason within one year
      after
      a change in control, he will: (1) receive a lump sum payment equal to 299%
      of
      his "base amount" (not to exceed $1.0 million in the case of Mr. Bruce and
      $1.25
      million in the case of Mr. Doyle); (2) either (a) continue to receive
      substantially the same health, dental and life insurance benefits for two years
      after the termination date, in the case of Mr. Bruce, and three years after
      the
      termination date, in the case of Mr. Doyle, or (b) at his election, (or at
      ITLA
      Capital's election, if coverage under ITLA Capital's group plan is not available
      to the officer) receive an amount in cash equal to the premium cost being paid
      by ITLA Capital before the termination date; (3) receive title to ITLA
      Capital-owned or leased vehicle being used by him or, if the officer receives
      a
      monthly car allowance in lieu of a Company vehicle, an amount in cash equal
      to
      24 times, in the case of Mr. Bruce, and 36 times, in the case of Mr. Doyle,
      the
      greater of the monthly allowance on the date of the change in control or on
      the
      termination date; and (4) become vested in all of his outstanding unvested stock
      options and restricted stock awards.




The
      agreements with Messrs. Lodwick and Lombardi provide that if the officer's
      employment is "involuntarily terminated" in connection with or within two years
      after a change in control, he or she will: (1) receive a lump sum payment equal
      to the sum of (a) 1.5 times his base salary on the date of the change in control
      or the date of termination, whichever is greater and (b) a prorated bonus amount
      for the year in which the termination occurs based on the officer's prior year
      annual bonus, (2) either (a) continue to receive substantially the same health,
      dental and life insurance benefits for 18 months after the termination date
      or
      (b) at his election (or at ITLA Capital's election, if coverage under ITLA
      Capital's group plan is not available to the officer), receive an amount in
      cash
      equal to the premium cost being paid by ITLA Capital before the termination
      date; (3) receive title to ITLA Capital-owned or leased vehicle being used
      by
      him or, if the officer receives a monthly car allowance in lieu of a Company
      vehicle, an amount in cash equal to 18 times the greater of the monthly
      allowance on the date of the change in control or on the termination date;
      and
      (4) become vested in all of his outstanding unvested stock options and
      restricted stock awards. The term "Involuntary Termination" means the
      termination of the employment of the executive without his express written
      consent or a material diminution of or interference with the executive's duties,
      responsibilities and benefits as these same duties, responsibilities and
      benefits exist the day prior to the Change of Control, including (without
      limitation) any of the following actions unless consented to in writing by
      the
      executive: (1) a requirement that the executive be based at a place other than
      the executive's work location immediately prior to the Change of Control or
      within 35 miles thereof, except for reasonable business travel; (2) a material
      demotion of the executive; (3) a material reduction in the number or seniority
      of other personnel reporting to the executive or a material reduction in the
      frequency with which, or in the nature of the matters with respect to which,
      such personnel are to report to the executive, other than as part of a company-wide
      reduction in staff; (4) a material adverse change in the executive's salary,
      other than as part of an overall program applied uniformly and with equitable
      effect to all members of the senior management of the company; (5) a material
      permanent increase in the required hours of work or the workload of the
      executive; (6) a material change in the reporting relationship to which the
      executive reports prior to the Change of Control; or (7) a material increase
      or
      decrease in business responsibilities and duties, such that the executive's
      qualifications as utilized prior to the Change of Control are no longer
      consistent with the qualifications needed for the revised position. The term
      "Involuntary Termination" does not include termination for cause, termination
      of
      employment due to retirement on or after the executive attains age 65, death,
      or
      termination of employment by us due to disability.




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Each
      agreement provides that to the extent the value and amounts of benefits under
      the agreement, together with any other amounts and the value of other benefits
      received by the officer in connection with a change in control would cause
      any
      amount to be non-deductible by ITLA Capital pursuant to Section 280G of the
      Code, then the amounts and benefits under the agreement will be reduced to
      the
      extent necessary to avoid the non-deductibility of any such amounts and benefits
      under Section 280G, assuming a change in control.





The
      following additional definitions apply to the termination and change in control
      provisions in the change in control agreements:





A
      termination for “Cause” occurs if we terminate employment because of (i) willful
      and continued failure by the executive substantially to perform his duties
      (other than a failure resulting from physical or mental illness) after a demand
      for substantial performance is delivered to the executive by the Chairman of
      the
      Board of Directors or the Chief Executive Officer of the Company which
      specifically identifies the manner in which the executive has not substantially
      performed his duties, (ii) the executive's willful dishonesty, incompetence,
      willful misconduct, breach of fiduciary duty involving personal profit,
      intentional failure to perform stated duties, willful violation of any law,
      rule, regulation, or final cease-and-desist order, relating to the executive's
      employment with the Company or otherwise interfering with the executive's
      ability to carry out the duties of the employment, or material breach of any
      provision of this Agreement or any employment agreement between the Company
      and
      the Executive; provided that no act or failure to act shall be considered
      "willful" unless done or omitted to be done by the Executive in bad faith and
      without reasonable belief that the act or omission was in or not opposed to
      the
      best interests of the Company. Any act or failure to act based upon authority
      pursuant to a resolution duly adopted by the Board of Directors or upon the
      advice of counsel for the Company shall be conclusively presumed to be done
      or
      omitted to be done in good faith and in the best interests of the Company.
      The
      Executive's attention to matters not directly related to the business of the
      Company shall not provide a basis for Termination for Cause if the Board of
      Directors or the Chief Executive Officer of the Company has approved the
      Executive's engaging in such activities. The Executive shall not be deemed
      to
      have been Terminated for Cause unless and until the Company has delivered to
      the
      Executive a notice containing a resolution adopted by not less than
      three-quarters of the entire membership of the Board of Directors at a meeting
      called and held for the purpose, after reasonable notice to the Executive and
      opportunity for him to appear with counsel before the Board of Directors,
      finding that in the good faith opinion of the Board of Directors that the
      Executive has engaged in conduct described in this Section 1(f) and specifying
      the particulars in detail.





A
“Change
      in Control” means the occurrence of any of the following events with respect to
      the Company: (1) any person (as the term is used in section 13(d) and 14(d)
      of
      the Exchange Act is or becomes the beneficial owner (as defined in Rule 13d-3
      under the Exchange Act), directly or indirectly of securities of ITLA Capital
      representing 33.33% or more of ITLA Capital's outstanding securities; (2)
      individuals who are members of the Board of Directors of ITLA Capital on the
      date hereof (the "Incumbent Board") cease for any reason to constitute at least
      a majority thereof, provided that any person becoming a director subsequent
      to
      the date hereof whose election was approved by a vote of at least two thirds
      of
      the directors comprising the Incumbent Board, or whose
      nomination for election by ITLA Capital 's stockholders was approved by the
      nominating committee serving under an Incumbent Board, shall be considered
      a
      member of the Incumbent Board; (3) a reorganization, merger, consolidation,
      sale
      of all or substantially all of the assets of ITLA Capital or a similar
      transaction in which ITLA Capital is not the resulting entity (unless the
      continuing ownership requirements clause (4) below are met with respect to
      the
      resulting entity); or (4) a merger or consolidation of ITLA Capital with any
      other corporation other than a merger or consolidation in which the voting
      securities of ITLA Capital outstanding immediately prior thereto represent
      at
      least 66.67% of the total voting power represented by the voting securities
      of
      ITLA Capital or the surviving entity outstanding immediately after such merger
      or consolidation. The term "Change in Control" shall not include: (1) an
      acquisition of securities by an employee benefit plan of ITLA Capital; or (2)
      any of the above mentioned events or occurrences which require but do not
      receive the requisite government or regulatory approval to bring the event
      or
      occurrence to fruition.





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**Potential
      Payments Upon Termination of Employment**





The
      following tables summarize the approximate value of the termination payments
      and
      benefits that the named executive officers would have received if their
      employment had been terminated on December 29, 2006 under the circumstances
      shown. The tables exclude (i) amounts accrued through December 29, 2006 that
      would be paid in the normal course of continued employment, such as accrued
      but
      unpaid salary and bonus amounts, (ii) vested account balances under our 401(k)
      plan, and (iii) vested account balances under our Deferral Plan and the SERP,
      as
      described under “Nonqualifed Deferred Compensation” and “Supplemental Executive
      Retirement Plan.”





**George
      W. Haligowski**





Termination
                Scenario
            
            Lump
                Sum Prorated Bonus*(1)*
            
            Salary/Bonus
                Continuation and Non-Compete*(2)*
            
            Health
                Coverage Continuation*(3)*
            
            Accelerated
                Vesting of Stock and Option Awards*(4)*
            
            Death
                Benefit Under Supplemental Life Insurance Policy*(5)*
            
            Other
                Benefits*(6)*
            
            Payment
                of 299% of “Base Amount”*(7)*
            
            Tax
                Gross Up Payment*(8)*If
                termination for cause occurs
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —If
                voluntary termination (not constituting “Involuntary Termination” under
                Employment Agreement) occurs
            
            $
            —
            
            $
            5,590,000
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —If
                “Involuntary Termination” under Employment Agreement (not in connection
                with or within five years after change in control) occurs
            
            $
            975,000
            
            $
            12,270,000
            
            $
            62,000
            
            $
            —
            
            $
            —
            
            $
            1,098,000
            
            $
            —
            
            $
            —If
                “Involuntary Termination” under Employment Agreement in connection with or
                after change in control occurs
            
            $
            —
            
            $
            9,090,000
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            9,905,701
            
            $
            —If
                termination occurs as a result of disability
            
            $
            975,000
            
            $
            12,270,000
            
            $
            62,000
            
            $
            —
            
            $
            —
            
            $
            858,000
            
            $
            —
            
            $
            —If
                termination occurs as a result of death
            
            $
            975,000
            
            $
            12,270,000
            
            $
            62,000
            
            $
            —
            
            $
            1,700,000
            
            $
            858,000
            
            $
            —
            
            $
            —


____________


*(1)*
            *Payable
                to Mr. Haligowski (or to his estate or designated beneficiary, in
                the
                event of death) under his employment agreement if his employment
                is
                “Involuntarily Terminated” not in connection with or after a change in
                control or due to disability or death.*


*(2)*
            *Payable
                to Mr. Haligowski under his employment agreement and non-competition
                and
                non-solicitation agreement and the Salary Continuation Plan for the
                applicable period described under “Agreements with Mr.
                Haligowski-Employment Agreement,”“-Non-Competition and Non-Solicitation
                Agreement” and “-Salary Continuation Plan.” These payments are comprised
                of the following: (i) in the case of voluntary termination not
                constituting “Involuntary Termination” under Mr. Haligowski’s employment
                agreement, the present value of the total payments that would be
                made to
                him under the Salary Continuation Plan, using a discount rate of
                5%
                ($5,590,000); (ii) in the case of Involuntary Termination not in
                connection with or after a change in control, or termination due
                to
                disability or death (A) the present value of the total payments that
                would
                be made to him (or his beneficiary, in the event of his death) under
                the
                Salary Continuation Plan, using a discount rate of 5% ($5,590,000)
                and (B)
                the aggregate amount of the total monthly salary and bonus continuation
                payments (through December 29, 2010) under his employment agreement
                ($6,680,000, or $139,165 per month); and (iii) in the case of Involuntary
                Termination in connection with or after a change in control, (A)
                the
                present value of the total payments that would be made to him under
                the
                Salary Continuation Plan, using a discount rate of 8% ($5,590,000)
                and (B)
                the total payments that would be made under his non-competition and
                non-solicitation agreement ($3,500,000).*


*(3)*
            *Represents
                the cost of providing the medical, dental and disability benefits
                described under “Agreements with Mr. Haligowski-Employment
                Agreement.”*


*(4)*
            *All
                stock options and SERP allocations are
                vested.*


*(5)*
            *Represents
                death benefit under supplemental life insurance policy maintained
                for Mr.
                Haligowski.*


*(6)*
            *Represents
                the cost or value of $240,000 for continued use of office space and
                secretarial support, $103,000 for the transfer to Mr. Haligowski
                of title
                to his leased vehicle, and $755,000 representing the transfer to
                Mr.
                Haligowski of our interest in life insurance policies on his life.
                The
                cost of office space and secretarial support are excluded if termination
                occurs as a result of disability or death as these benefits would
                not be
                provided under such circumstances.*


*(7)*
            *Represents
                lump sum amount payable to Mr. Haligowski under his employment agreement
                in the event his employment is Involuntarily Terminated in connection
                with
                or following a change in control of the Company, as described under
                “Agreements with Mr. Haligowski-Employment
                Agreement.”*


*(8)*
            *Based
                on the amounts shown in the table, no tax gross up payment would
                be
                payable to Mr. Haligowski under his employment agreement. See “Agreements
                with Mr. Haligowski - Employment
                Agreement.”*














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**Norval
      L. Bruce**





Termination
                Scenario
            
            Payment
                of 299% of “Base Amount”*(1)*
            
            Health
                Coverage and Life Insurance Continuation*(2)*
            
            Accelerated
                Vesting of Stock and Option Awards*(3)*
            
            Other
                Benefits*(4)*If
                “Termination Without Cause” under his Change of Control Agreement in
                connection with or within 36 months after change in control
                occurs
            
            $
            1,000,000
            
            $
            25,504
            
            $
            —
            
            $
            84,445


____________


*(1)*
            *Represents
                lump sum amount payable to Mr. Bruce under his change of control
                agreement
                in the event his employment is terminated in connection with or following
                a change in control of the Company, as described under “Change of Control
                Agreements.”*


*(2)*
            *Represents
                the cost of providing the health, dental and life insurance benefits
                described under “Change of Control
                Agreements.”*


*(3)*
            *All
                stock options and SERP allocations are
                vested.*


*(4)*
            *Represents
                the cost or value of $62,925 for the transfer to Mr. Bruce of title
                to his
                leased vehicle, $3,520 for the transfer to Mr. Bruce of home-based
                computer equipment and $18,000 for the transfer to Mr. Bruce of our
                interest in a golf club
                membership.*








**Timothy
      M. Doyle**





Termination
                Scenario
            
            Payment
                of 299% of “Base Amount”*(1)*
            
            Health
                Coverage and Life Insurance Continuation*(2)*
            
            Accelerated
                Vesting of Stock and Option Awards*(3)*
            
            Death
                Benefit under Supplemental Life Insurance Policy*(4)*
            
            Other
                Benefits*(5)*If
                “Termination Without Cause” under his Change of Control Agreement in
                connection with or within 36 months after change in control
                occurs
            
            $
            1,250,000
            
            $
            45,813
            
            $
            —
            
            $
            —
            
            $
            69,593If
                termination occurs as a result of death
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            250,000
            
            $
            —


____________


*(1)*
            *Represents
                lump sum amount payable to Mr. Doyle under his change of control
                agreement
                in the event his employment is terminated in connection with or following
                a change in control of the Company, as described under “Change of Control
                Agreements.”*


*(2)*
            *Represents
                the cost of providing the health, dental and life insurance benefits
                described under “Change of Control
                Agreements.”*


*(3)*
            *All
                stock options and SERP allocations are
                vested.*


*(4)*
            *Represents
                death benefit payable under supplemental life insurance policy maintained
                by the Company for Mr. Doyle’s
                benefit.*


*(5)*
            *Represents
                the cost or value of $66,203 for the transfer to Mr. Doyle of title
                to his
                leased vehicle and $3,390 for the transfer to Mr. Doyle of home-based
                computer equipment.*











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**Lyle
      C. Lodwick**





Termination
                Scenario
            
            Lump
                Sum Payment*(1)*
            
            Health
                Coverage and Life Insurance Continuation*(2)*
            
            Accelerated
                Vesting of Stock and Option Awards*(3)*
            
            Other
                Benefits*(4)*If
                “Involuntary Termination” under Change in Control Severance Agreement in
                connection with or within 24 months after change in control
                occurs
            
            $
            412,488
            
            $
            16,785
            
            $
            —
            
            $
            49,375


____________


*(1)*
            *Represents
                lump sum amount payable to Mr. Lodwick under his change of control
                agreement in the event his employment is “Involuntarily Terminated” in
                connection with or following a change in control of the Company,
                as
                described under “Change of Control
                Agreements.”*


*(2)*
            *Represents
                the cost of providing the health, dental and life insurance benefits
                described under “Change of Control
                Agreements.”*


*(3)*
            *All
                stock options and SERP allocations are
                vested.*


*(4)*
            *Represents
                the cost or value of $49,375 for the transfer to Mr. Lodwick of title
                to
                his leased vehicle.*





**Phillip
      E. Lombardi**





Termination
                Scenario
            
            Lump
                Sum Payment*(1)*
            
            Health
                Coverage and Life Insurance Continuation*(2)*
            
            Accelerated
                Vesting of Stock and Option Awards*(3)*
            
            Other
                Benefits*(4)*If
                “Involuntary Termination” under Change in Control Severance Agreement in
                connection with or within 24 months after change in control
                occurs
            
            $
            335,805
            
            $
            9,658
            
            $
            —
            
            $
            33,940


____________


*(1)*
            *Represents
                lump sum amount payable to Mr. Lombardi under his change of control
                agreement in the event his employment is “Involuntarily Terminated” in
                connection with or following a change in control of the Company,
                as
                described under “Change of Control
                Agreements.”*


*(2)*
            *Represents
                the cost of providing the health, dental and life insurance benefits
                described under “Change of Control
                Agreements.”*


*(3)*
            *All
                stock options and SERP allocations are
                vested.*


*(4)*
            *Represents
                the cost or value of $33,940 for the transfer to Mr. Lombardi of
                title to
                his leased vehicle.*








**Compensation
      Committee Report**




The
      Compensation Committee has reviewed and discussed the Compensation Discussion
      and Analysis contained above with management and, based on such review and
      discussion, the Compensation Committee recommended to the Board of Directors
      that the Compensation Discussion and Analysis be included in this Report on
      Form
      10-K.











Submitted
      by the Compensation Committee of ITLA Capital’s Board of Directors:





Jeffrey
      L. Lipscomb


Sandor
      X.
      Mayuga


Hirotaka
      Oribe








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**Compensation
      Committee Interlocks and Insider Participation**





No
      member
      of the Compensation Committee is a current or former officer or employee of
      ITLA
      Capital or any of its subsidiaries. None of our executive officers has served
      on
      the board of directors or the Committee of any other entity that had an
      executive officer serving on our Board of Directors or on the Compensation
      Committee of our Board of Directors.





**Director
      Compensation**





The
      following table sets forth certain information regarding the compensation earned
      by or awarded to each director, who is not also a named executive officer,
      who
      served on our Board of Directors in 2006. Directors who are employees of ITLA
      Capital are not compensated for their service as directors.





Name
            
            Fees
                Earned or Paid in Cash
            
            Stock
                Awards
            
            Option
                Awards*(1)*
            
            Non-Equity
                Incentive Plan Compensation
            
            Change
                in Pension Value and Non-qualified Deferred Compensation
                Earnings
            
            All
                Other Compensation*(2)*
            
            TotalJeffrey
                L. Lipscomb
            
            $
            45,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            5,000
            
            $
            50,000Preston
                Martin
            
            $
            42,000
            
            
            —
            
            $
            2,492
            
            
            —
            
            
            —
            
            $
            15,000
            
            $
            59,492Sandor
                X. Mayuga
            
            $
            40,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            —
            
            $
            40,000Hirotaka
                Oribe
            
            $
            46,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            15,000
            
            $
            61,000Robert
                R. Reed
            
            $
            45,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            5,000
            
            $
            50,000


_______________


*(1)*
            
            *Amount
                in the table represent the compensation cost of stock options recognized
                for 2006 for financial statement reporting purposes pursuant to SFAS
                No.
                123(R), and includes the cost attributable to grants made in 2006
                and in
                prior years. The assumptions we used in calculating this amount are
                set
                forth in Item 8. Financial Statements and Supplementary Data--Condensed
                Consolidated Financial Statements—Notes to Financial Statements—Note
                1—Summary of Significant Accounting Policies—Stock-Based
                Compensation. As of December 31, 2006, total shares underlying stock
                options held by the directors were as follows: Mr. Lipscomb - 6,500
                shares; Mr. Martin - 10,000 shares; Mr. Mayuga - 6,500 shares; Mr.
                Oribe -
                6,500 shares; and Mr. Reed - 6,500 shares.****On
                October 30, 2006, Mr. Martin was granted an option for 1,000 shares
                at an
                exercise price of $57.48 as an automatic anniversary award pursuant
                to the
                Director Stock Option Plan (see “—Stock Incentive Plans”). This grant date
                fair value of this award to Mr. Martin, computed in accordance with
                SFAS
                No. 123(R), was approximately $15,000.**(2)*
            
            *Amounts
                in this column represent honorariums paid during 2006 to Mr. Lipscomb,
                Mr.
                Oribe, and Mr. Reed, as well as an annual retainer fee for Mr. Martin,
                as
                explained below.*





Director
      Compensation Arrangements. During 2006, each non-employee director was paid
      a
      monthly fee of $2,250 for serving on our Board of Directors and $1,000 for
      each
      Board or Committee meeting attended for service on such committee. In addition,
      Director Reed received an honorarium of $5,000 for his active assistance in
      legislative matters during 2006, Director Lipscomb received an honorarium of
      $5,000 for his active assistance with compensation matters and chairmanship
      of
      the Compensation Committee, and Director Oribe received an honorarium of $15,000
      for his extensive work with the Executive Committee and large loan approval
      process. In 2006, Director Martin received an annual retainer fee of $15,000
      for
      his service as Chairman of the Audit Committee. Directors are also eligible
      to
      receive stock options under the Director Stock Option Plan (see “—Stock
      Incentive Plans”). Mr. Martin, who received an automatic anniversary award under
      the Director Stock Option Plan described in footnote 1 to the table above,
      was
      the only non-employee director who received an option grant in 2006.




We
      pay
      for or reimburse our directors’ travel, lodging and other reasonable
      out-of-pocket expenses in connection with attendance at board, committee and
      stockholder meetings, and for other reasonable expenses related to board service
      such as director education.




*Voluntary
      Retainer Stock and Deferred Compensation Plan.* In 1996,
      we adopted the Voluntary Retainer Stock and Deferred Compensation Plan for
      Outside Directors (the “Outside Director Plan”). The Outside Director Plan
      provides for the deferral of compensation earned by non-employee directors
      in
      the form of Stock Units (“Stock Units”) in a Stock Unit account (“Stock Unit
      Account”). Directors may elect to have up to 100% of their fees converted into
      stock units.





For
      dividends paid with respect to our common stock, each non-employee director
      has
      credited to his Stock Unit Account an additional number of Stock Units in an
      amount determined under the Outside Director Plan. Each non-employee director’s
      Stock Unit Account will be settled by delivering to the non-employee director
      (or his beneficiary) the number of shares of our common stock equal to the
      number of whole Stock Units then credited to the non-employee director’s Stock
      Unit Account, in either (i) a lump sum or (ii) substantially equal annual
      installments over a period not to exceed ten years.





To
      date,
      no amounts have been deferred under the Outside Director Plan.





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**Item
      12.Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters**





At
      March
      5, 2007, we had 5,527,651 shares of common stock outstanding.





The
      following table sets forth, as of March 5, 2007, certain information as to
      those
      persons who were known by management to be beneficial owners of more than five
      percent of our common stock outstanding.





**Beneficial
                Owner**
            
            **Shares
                Beneficially Owned**
            
            **Percent
                of Class**Dimensional
                Fund Advisors, LP
            
            
            478,886
                (1
            )
            
            8.66
            %1299
                Ocean Avenue, 11th Floor
              Santa
                Monica, CA 90401
              
              Franklin
                Mutual Advisers, LLC
            
            
            445,796
                (2
            )
            
            8.06
            %51
                John F. Kennedy Parkway
              Short
                Hills, NJ 07078
              
              Thomson
                Horstmann & Bryant, Inc.
            
            
            407,009
                (3
            )
            
            7.36
            %Park
                80 West, Plaza One
              Saddle
                Brook, NJ 07663
              
              Barclays
                Global Advisors, NA, et. al
            
            
            400,532
                (4
            )
            
            7.25
            %45
                Fremont Street
              San
                Francisco, CA 94105
              
              Wellington
                Management Company, LLP
            
            
            374,430
                (5
            )
            
            6.77
            %75
                State Street
              Boston,
                MA 02109
              
              George
                W. Haligowski
            
            
            335,454
                (6
            )
            
            5.92
            %888
                Prospect Street, Suite 110
              La
                Jolla, CA 92037


____________





*(1)*  *As
      reported by Dimensional Fund Advisors, LP ("Dimensional") on a Schedule 13G
      amendment filed on February 9, 2007 with the Securities and Exchange Commission
      under the Securities Exchange Act of 1934, as amended. Dimensional reported
      sole
      voting and dispositive powers as to all of the 478,886 shares, and shared voting
      and dispositive powers as to none of the 478,886 shares covered by the
      report.*





*(2)*  *As
      reported by Franklin Mutual Advisers, LLC ("Franklin") on a Schedule 13G
      amendment filed on February 11, 2005 with the Securities and Exchange Commission
      under the Securities Exchange Act of 1934, as amended. Franklin reported sole
      voting and dispositive powers as to all of the 445,796 shares, and shared voting
      and dispositive powers as to none of the 445,796 shares covered by the
      report.*





*(3)
      As reported by Thomson Horstmann & Bryant, Inc., ("Thomson") on a Schedule
      13G amendment filed on January 29, 2007 with the Securities and Exchange
      Commission under the Securities Exchange Act of 1934, as amended. Thomson
      reported sole voting power as to 221,206 shares, sole dispositive power as
      to
      all of the 407,009 shares, and shared voting and dispositive power as to none
      of
      the 407,009 shares covered by the report.*





*(4)*  *As
      reported by Barclays Global Investors, NA., Barclays Global Fund Advisors,
      Barclays Global Investors, Ltd., Barclays Global Investors Japan Trust and
      Banking Company Limited and Barclays Global Investors Japan Limited on a
      Schedule 13G filed on January 23, 2007 with the Securities and Exchange
      Commission under the Securities Exchange Act of 1934, as amended. With respect
      to the 400,532 shares listed, Barclays Global Investors, NA., reported sole
      voting power as to 271,864 shares, sole dispositive power as to 308,626 shares
      and shared voting and dispositive powers as to none of such shares, and Barclays
      Global Fund Advisors reported sole voting and dispositive powers as to 91,906
      shares, and shared voting and dispositive powers as to none of such
      shares.*





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*(5)*  *As
      reported by Wellington Management Company, LLP ("WMC") on a Schedule 13G
      amendment filed on February 14, 2007 with the Securities and Exchange Commission
      under the Securities Exchange Act of 1934, as amended. WMC reported sole voting
      and dispositive powers as to none of the 374,430 shares, shared voting power
      as
      to 210,700 shares, and shared dispositive power as to all of the 374,430 shares
      covered by the report.*





*(6)*  *Includes
      142,500 shares underlying stock options which were exercisable as of March
      5,
      2007, 163,782 shares held in Mr. Haligowski’s SERP account in the rabbi trust
      established by the Company and 29,172 held in Mr. Haligowski’s deferred
      compensation plan account in the rabbi trust.*





The
      following table sets forth, as of March 5, 2007, certain information as to
      the
      shares of common stock beneficially owned by the directors and named executive
      officers and by all directors and executive officers of ITLA Capital as a
      group.





**Beneficial
                Owner**
            
            **Shares**
              **Beneficially**
              **Owned**
              ***(1)(2)(3)***
            
            **Percent
                of**
              **Class**George
                W. Haligowski
            
            
            335,454
            
            
            5.92
            %Timothy
                M. Doyle
            
            
            106,701
            
            
            1.90Norval
                L. Bruce
            
            
            61,195
            
            
            1.10Lyle
                C. Lodwick
            
            
            50,782
            
            
            0.91Phillip
                E. Lombardi
            
            
            32,805
            
            
            0.59Sandor
                X. Mayuga
            
            
            12,300
            
            
            0.22Preston
                Martin
            
            
            11,166
            
            
            0.20Robert
                R. Reed
            
            
            7,800
            
            
            0.14Jeffrey
                L. Lipscomb
            
            
            7,100
            
            
            0.13Hirotaka
                Oribe
            
            
            6,700
            
            
            0.12All
                Directors and Executive Officers as a Group (10 Persons)
            
            
            632,003
            
            
            10.75


____________





*(1)*
            *Includes
                shares held directly, as well as shares held in retirement accounts
                or by
                certain members of the named individual's families or corporations
                for
                which an individual is an officer or director or held by trust of
                which an
                individual is trustee or a substantial beneficiary, over which shares
                the
                individual may be deemed to have sole or shared voting and/or dispositive
                power.*





*(2)*
            *Includes
                shares underlying exercisable options and options exercisable within
                60
                days of March 5, 2007 as follows: Chairman Haligowski - 142,500 shares;
                Director Lipscomb - 6,500 shares; Director Mayuga - 6,500 shares;
                Director
                Oribe - 6,500 shares; Director Reed - 6,500 shares; Director Martin
                -
                9,000 shares; Vice Chairman Bruce - 23,000 shares; Timothy M. Doyle
                -
                75,000 shares; Lyle C. Lodwick - 47,500 shares; Phillip E. Lombardi
                -
                30,000 shares; and all directors and executive officers as a group
                -
                353,000 shares.*





*(3)*
            *Includes
                vested SERP account shares held in the rabbi trust established by
                the
                Company, as follows: Chairman Haligowski -163,782 shares; Vice Chairman
                Bruce - 37,995 shares; Timothy M. Doyle - 31,701 shares; Lyle C.
                Lodwick -
                3,282 shares; Phillip E. Lombardi - 2,805 shares and all directors
                and
                executive officers as a group - 239,565. Also includes 29,172 shares
                held
                for Mr. Haligowski in his deferred compensation plan account in the
                rabbi
                trust.*








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The
      following table sets forth information as of December 31, 2006 with respect
      to
      compensation plans under which shares of our common stock may be
      issued:





**Equity
      Compensation Plan Information**





**Plan
                Category**
            
            **Number
                of Shares to**
              **be
                issued upon**
              **Exercise
                of**
              **Outstanding**
              **Options,
                Warrants**
              **and
                Rights**
            
            **Weighted
                Average**
              **Exercise
                Price of**
              **Outstanding**
              **Options,
                Warrants**
              **And
                Rights**
            
            **Number
                of Shares**
              **Remaining
                Available**
              **for
                Future Issuance**
              **Under
                Equity**
              **Compensation
                Plans**
              **(Excluding
                Shares**
              **Reflected
                in the**
              **First
                Column) (1)**Equity
                compensation plans approved by stockholders
            
            
            545,984
            
            $
            35.73
            
            
            264,344Equity
                compensation plans not approved by stockholders
            
            
            N/A
            
            
            N/A
            
            
            N/ATotal
            
            
            545,984
            
            $
            35.73
            
            
            264,344


____________





*(1)*
            *This
                amount includes 125,000 shares issuable under our 1996 Voluntary
                Retainer
                Stock and Deferred Compensation Plan for Outside Directors, described
                under “Item 11. Executive Compensation — Directors Compensation.” Under
                the Company’s 2005 Re-Designated, Amended and Restated Employee Stock
                Incentive Plan, up to 65,422 of the 130,844 shares remaining available
                for
                issuance under that plan as of December 31, 2006 could be issued
                to plan
                participants pursuant to awards of restricted stock, restricted stock
                units, performance shares and/or performance
                units.*





**Item
      13. CertainRelationships and Related Transactions, and
      Director Independence**





*Certain
      Relationships and Related Transactions.* Our Code
      of Business Conduct and Ethics provides that all related party transactions
      (defined as transactions requiring disclosure under Item 404 of Securities
      and
      Exchange Commission Regulation S-K) must be approved reviewed and approved
      by a
      majority of our disinterested independent directors.





During
      the year, we also the services of Keesal, Young & Logan. Director Mayuga is
      a partner in that law firm. During 2006, this law firm received $16,000 in
      legal
      fees from ITLA Capital and the Bank.





*Director
      Independence.*  Pursuant
      to the NYSE’s listing standards, we are required to have a majority of
      independent directors, and no director qualifies as independent unless our
      Board
      of Directors has affirmatively determined that the director has no material
      relationship with the Company. As permitted by the NYSE’s listing standards, our
      Board of Directors has
      adopted categorical standards to assist it in making determinations of
      independence. These standards are contained in Section 1 of our Corporate
      Governance Guidelines, which are posted on our website at www.itlacapital.com ,
      under
“Investor Relations” and then under “Governance.” Our Board has determined that
      Directors Lipscomb, Martin, Mayuga, Oribe and Reed have no
      material relationships with us, and therefore are independent directors of
      the
      Company. This determination was based upon the fact that other than Director
      Mayuga, none of these directors has any relationship with the Company other
      than
      as a director and member of committees of the Board. In making its determination
      that Director Mayuga is independent, the Board considered the relationship
      disclosed above under “-Certain Relationships and Related
      Transactions.”








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**Item
      14. Principal Accountant Fees and
      Services**





During
      the fiscal years ended December 31, 2006 and 2005, Ernst & Young LLP
      provided various audit, audit related and non-audit services to the Company.
      Set
      forth below are the aggregate fees billed for these services:





(a)
            Audit
                Fees: Aggregate fees billed for professional services rendered for
                the
                audits of the Company’s annual financial statements and internal controls
                over financial reporting, and reviews of financial statements included
                in
                the Company’s Quarterly Reports on Form 10-Q for those fiscal years:
                $332,000 - 2006; $306,000 - 2005.





(b)
            Audit
                Related Fees: Aggregate fees billed for professional services rendered
                related to audits of employee benefit plans, consultation related
                to the
                implementation of the Sarbanes-Oxley Act, and consultation on accounting
                matters: $20,000 - 2006; $34,000 -
                2005.





(c)
            Tax
                Fees: Aggregate fees billed for professional services rendered related
                to
                tax compliance, tax advice and tax return preparation: $95,000- 2006;
                $165,000 - 2005.





(d)
            All
                other fees: Aggregate fees billed for professional services rendered
                in
                connection with the review and consultation on various issues relating
                to
                employment and other benefit related contracts: $22,000 - 2006; None
                -
                2005.





The
      audit
      committee preapproves all audit and permissible non-audit services to be
      provided by Ernst & Young LLP and the estimated fees for these services.
      None of the services provided by Ernst & Young LLP described in items (a) -
      (d) above was approved by the audit committee pursuant to a waiver of the
      pre-approved requirements of the SEC’s rules and regulations.








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**PART
      IV**





**Item
      15.Exhibits and Financial Statement Schedules**





**(a)(1)
      Financial Statements:**





Our
      consolidated financial statements, and Report of Independent Registered Public
      Accountants thereon, are included in this Form 10-K at the pages listed
      below:





**Page**Management’s
                Report on Internal Control Over Financial
                Reporting
            43Reports
                of Independent Registered Public Accounting
                Firm
            44Consolidated
                Balance Sheets as of December 31, 2006 and
                2005
            46Consolidated
                Statements of Income for the Years Ended
                December 31, 2006, 2005 and 2004
            47Consolidated
                Statements of Changes in Shareholders’
                Equity and Comprehensive Income for the Years Ended December 31,
                2006,
                2005 and 2004
            48Consolidated
                Statements of Cash Flows for the Years
                Ended December 31, 2006, 2005 and 2004
            49Notes
                to Consolidated Financial
                Statements
            50





**(a)(2)
      Financial Statement Schedules:**





All
      financial statement schedules have been omitted as the required information
      is
      inapplicable or has been included in the Notes to Consolidated Financial
      Statements.





**(a)(3)
      Exhibits:**





See
      Exhibit Index.





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          of Contents**





**SIGNATURES**





**Pursuant
      to the requirements of Section 13 or 15(d) of the
      Securities**  **Exchange
      Act of 1934, the Registrant has duly caused this report to be
      signed**  **on
      its behalf by the undersigned, thereunto duly authorized.**





**ITLA
      CAPITAL CORPORATION**




Date:
                  March 16, 2007
              By:
              /s/
                  George W. HaligowskiGeorge
                  W. HaligowskiChairman
                  of the Board, Presidentand
                  Chief Executive Officer*(Duly
                  Authorized
                  Representative)*


**Pursuant
      to the requirements of the Securities Exchange Act of 1934,
      this**  **report
      has been signed below by the following persons on behalf of
      the**  **Registrant
      and in the capacities and on the dates indicated.**





**Signature**
            **Title**
            **Date**/s/
                George W. Haligowski
            Chairman
                of the Board, President and
            March
                16, 2007George
                W. Haligowski
            Chief
                Executive Officer*(Principal
                Executive Officer)*/s/
                Timothy M. Doyle
            Executive
                Managing Director and
            March
                16, 2007Timothy
                M. Doyle
            Chief
                Financial Officer*(Principal
                Financial and Accounting Officer)*/s/
                Norval L. Bruce
            Director
            March
                16, 2007Norval
                L. Bruce/s/
                Jeffrey L. Lipscomb
            Director
            March
                16, 2007Jeffrey
                L. Lipscomb/s/
                Sandor X. Mayuga
            Director
            March
                16, 2007Sandor
                X. Mayuga/s/
                Robert R. Reed
            Director
            March
                16, 2007Robert
                R. Reed/s/
                Hirotaka Oribe
            Director
            March
                16, 2007Hirotaka
                Oribe/s/
                Preston Martin
            Director
            March
                16, 2007Preston
                Martin





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**EXHIBIT
      INDEX**


**Regulation
                S-K Exhibit Number**
            
            **Document**
            
            **Reference
                to Prior Filling or Exhibit Number Attached
                Hereto**3.1
            
            Certificate
                of Incorporation
            
            **3.2
            
            Bylaws,
                as amended
            
            ***4
            
            Instruments
                Defining the Rights of Security Holders, Including
                Indentures
            
            **********10.1
            
            2005
                Re-Designated, Amended and Restated Stock Option Plan For Nonemployee
                Directors (“NEDP”)
            
            *****10.2
            
            2005
                Re-Designated, Amended and Restated Employee Stock Incentive Plan
                (“ESIP”)
            
            ********10.3a
            
            Nonqualified
                (Non-Employer Securities) Deferred Compensation Plan
            
            ********10.3b
            
            Nonqualified
                (Employer Securities Only) Deferred Compensation Plan
            
            ********10.4
            
            Supplemental
                Salary Savings Plan
            
            *10.5a
            
            Amended
                and Restated Employment Agreement with George W.
                Haligowski
            
            ********10.5b
            
            Non-Competition
                and Non-Solicitation Agreement with George W. Haligowski
            
            ********10.6
              10.7
              10.8
              10.9
            
            Change
                in Control Severance Agreement with Norval L. Bruce
              Change
                in Control Severance Agreement with Timothy M. Doyle
              Change
                in Control Severance Agreement with Lyle C. Lodwick
              Change
                in Control Severance Agreement with Phillip E. Lombardi
            
            ********
              ********
              ********
              10.910.10
            
            Recognition
                and Retention Plan
            
            **10.11
            
            Voluntary
                Retainer Stock and Deferred Compensation Plan for Outside
                Directors
            
            ****10.12
            
            Amended
                and Restated Supplemental Executive Retirement Plan
            
            ********10.13
            
            Amended
                and Restated ITLA Capital Corporation Rabbi Trust
                Agreement
            
            *********10.14
            
            Amended
                and Restated Salary Continuation Plan
            
            ********10.15
            
            Form
                of Incentive Stock Option Agreement under ESIP
            
            ******10.16
              10.17
            
            Form
                of Non-Qualified Stock Option Agreement under the ESIP
              Form
                of Non-Qualified Stock Option Agreement under the NEDP
            
            ******
              *******10.18
            
            Description
                of Named Executive Officer Salary, Bonus and PerquisiteArrangements
                for 2007
            
            10.1810.19
            
            Description
                of Director Fee Arrangements
            
            10.1911
            
            Statement
                Regarding Computation of Per Share Earnings
            
            Not
                Required13
            
            Annual
                Report to Security Holders
            
            None18
            
            Letter
                Regarding Change in Accounting Principles
            
            None21
            
            Subsidiaries
                of the Registrant
            
            2122
            
            Published
                Report Regarding Matters Submitted to Vote of Security
                Holders
            
            None23.1
            
            Consent
                of Ernst & Young LLP
            
            23.124
            
            Power
                of Attorney
            
            None31.1
            
            Rule
                13a-14(a)/15d-14(a) Certification of Chief Executive
                Officer
            
            31.131.2
            
            Rule
                13a-14(a)/15d-14(a) Certification of Chief Financial
                Officer
            
            31.232
            
            Section
                1350 Certifications of Chief Executive Officer and Chief Financial
                Officer
            
            32




*
              Filed
                  as an exhibit to Imperial’s Registration Statement on Form S-1 (File No.
                  33-96518) filed with the Commission on September 1, 1995, pursuant
                  to
                  Section 5 of the Securities Act of 1933.*
                  *
              Filed
                  as an exhibit to the Company’s Registration Statement on Form S-4 (File
                  No. 333-03551) filed with the Commission on May 10, 1996, pursuant
                  to
                  Section 5 of the Securities Act of 1933.*
                  *
                  *
              Filed
                  as an exhibit to the Company’s Form 10-Q for the quarter ended June 30,
                  2000 (File No. 0-26960).*
                  *
                  * *
              Filed
                  as an exhibit to Amendment No. Two to the Company’s Registration Statement
                  on Form S-4 (File No. 333-03551) filed with the Commission on June
                  19,
                  1996.*
                  *
                  * * *
              Filed
                  as an appendix to the Company’s definitive proxy materials filed on June
                  27, 2005.*
                  *
                  * * * *
              Filed
                  as an exhibit to the Company’s Current Report on Form 8-K filed on August
                  9, 2005.*
                  *
                  * * * * *
              Filed
                  as an exhibit to the Company’s Current Report on Form 8-K filed on
                  November 4, 2005.*
                  *
                  * * * * * *
              Filed
                  as an exhibit to the Company’s Current Report on Form 8-K filed on
                  February 24, 2006.*
                  *
                  * * * * * * *
              Filed
                  as an exhibit to the Company’s Form 10-Q for the quarter ended June 30,
                  2006.*
                  *
                  * * * * * * * *
              The
                  Company hereby agrees to furnish the SEC, upon request, copies
                  of the
                  instruments defining the rights of the holders of each issue of
                  the
                  Company's long-term debt.





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